Correlation Between BAE Systems and Moog

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

Diversification Opportunities for BAE Systems and Moog

-0.38

Correlation Coefficient

BAE Systems  Moog

Very good diversification

The 3 months correlation between BAE and Moog is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Moog Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Moog Inc 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 Moog. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Moog Inc has no effect on the direction of BAE Systems i.e., BAE Systems and Moog go up and down completely randomly.

Pair Corralation between BAE Systems and Moog

Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the Moog. But the pink sheet apears to be less risky and, when comparing its historical volatility, BAE Systems PLC is 1.44 times less risky than Moog. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Moog Inc is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  17,000  in Moog Inc on September 12, 2024 and sell it today you would earn a total of  4,591  from holding Moog Inc or generate 27.01% return on investment over 90 days.

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

BAE Systems PLC  vs.  Moog Inc

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 fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Moog Inc

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Moog Inc are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal basic indicators, Moog sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BAE Systems and Moog

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

The idea behind BAE Systems PLC and Moog Inc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.