Correlation Between BAE Systems and Safran SA

Can any of the company-specific risk be diversified away by investing in both BAE Systems and Safran SA 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 Safran SA 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 Safran SA, you can compare the effects of market volatilities on BAE Systems and Safran SA 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 Safran SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BAE Systems and Safran SA.

Diversification Opportunities for BAE Systems and Safran SA

0.69

Correlation Coefficient

BAE Systems  Safran SA

Poor diversification

The 3 months correlation between BAE and Safran is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Safran SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Safran SA 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 Safran SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Safran SA has no effect on the direction of BAE Systems i.e., BAE Systems and Safran SA go up and down completely randomly.

Pair Corralation between BAE Systems and Safran SA

Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the Safran SA. But the pink sheet apears to be less risky and, when comparing its historical volatility, BAE Systems PLC is 1.01 times less risky than Safran SA. The pink sheet trades about -0.28 of its potential returns per unit of risk. The Safran SA is currently generating about -0.05 of returns per unit of risk over similar time horizon. If you would invest  22,080  in Safran SA on October 8, 2024 and sell it today you would lose (296.00) from holding Safran SA or give up 1.34% of portfolio value over 90 days.

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

BAE Systems PLC  vs.  Safran SA

BAE Systems PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BAE Systems PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite inconsistent performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Safran SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Safran SA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Safran SA is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BAE Systems and Safran SA

The main advantage of trading using opposite BAE Systems and Safran SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE Systems position performs unexpectedly, Safran SA 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 Safran SA will offset losses from the drop in Safran SA's long position.

The idea behind BAE Systems PLC and Safran SA 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 Latest Portfolios module to quick portfolio dashboard that showcases your latest portfolios.