Correlation Between BAE Systems and Dassault Aviation

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

Diversification Opportunities for BAE Systems and Dassault Aviation

0.5

Correlation Coefficient

BAE Systems  Dassault Aviation

Very weak diversification

The 3 months correlation between BAE and Dassault is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Dassault Aviation SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dassault Aviation 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 Dassault Aviation. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dassault Aviation has no effect on the direction of BAE Systems i.e., BAE Systems and Dassault Aviation go up and down completely randomly.

Pair Corralation between BAE Systems and Dassault Aviation

Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the Dassault Aviation. But the pink sheet apears to be less risky and, when comparing its historical volatility, BAE Systems PLC is 1.68 times less risky than Dassault Aviation. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Dassault Aviation SA is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  18,485  in Dassault Aviation SA on September 30, 2024 and sell it today you would earn a total of  2,135  from holding Dassault Aviation SA or generate 11.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

BAE Systems PLC  vs.  Dassault Aviation 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. In spite of latest inconsistent performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Dassault Aviation

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Dassault Aviation SA are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Dassault Aviation 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 Dassault Aviation

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

The idea behind BAE Systems PLC and Dassault Aviation 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.