Correlation Between BAE Systems and JLEN Environmental

Can any of the company-specific risk be diversified away by investing in both BAE Systems and JLEN Environmental at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining BAE Systems and JLEN Environmental into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BAE Systems plc and JLEN Environmental Assets, you can compare the effects of market volatilities on BAE Systems and JLEN Environmental and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in BAE Systems with a short position of JLEN Environmental. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAE Systems and JLEN Environmental.

Diversification Opportunities for BAE Systems and JLEN Environmental

0.26

Correlation Coefficient

BAE Systems  JLEN Environmental

Modest diversification

The 3 months correlation between BAE and JLEN is 0.26. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems plc and JLEN Environmental Assets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JLEN Environmental Assets and BAE Systems is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on BAE Systems plc are associated (or correlated) with JLEN Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JLEN Environmental Assets has no effect on the direction of BAE Systems i.e., BAE Systems and JLEN Environmental go up and down completely randomly.

Pair Corralation between BAE Systems and JLEN Environmental

Assuming the 90 days trading horizon BAE Systems plc is expected to generate 1.84 times more return on investment than JLEN Environmental. However, BAE Systems is 1.84 times more volatile than JLEN Environmental Assets. It trades about 0.23 of its potential returns per unit of risk. JLEN Environmental Assets is currently generating about 0.04 per unit of risk. If you would invest  115,600  in BAE Systems plc on December 20, 2024 and sell it today you would earn a total of  51,700  from holding BAE Systems plc or generate 44.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

BAE Systems plc  vs.  JLEN Environmental Assets

BAE Systems plc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BAE Systems plc are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, BAE Systems exhibited solid returns over the last few months and may actually be approaching a breakup point.

JLEN Environmental Assets

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in JLEN Environmental Assets are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, JLEN Environmental is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BAE Systems and JLEN Environmental

The main advantage of trading using opposite BAE Systems and JLEN Environmental positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE Systems position performs unexpectedly, JLEN Environmental can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in JLEN Environmental will offset losses from the drop in JLEN Environmental's long position.

The idea behind BAE Systems plc and JLEN Environmental Assets pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.