Correlation Between BAE Systems and Singapore Technologies

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

Diversification Opportunities for BAE Systems and Singapore Technologies

0.21

Correlation Coefficient

BAE Systems  Singapore Technologies

Modest diversification

The 3 months correlation between BAE and Singapore is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Singapore Technologies Enginee in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Singapore Technologies 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 Singapore Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Singapore Technologies has no effect on the direction of BAE Systems i.e., BAE Systems and Singapore Technologies go up and down completely randomly.

Pair Corralation between BAE Systems and Singapore Technologies

Assuming the 90 days horizon BAE Systems PLC is expected to under-perform the Singapore Technologies. But the pink sheet apears to be less risky and, when comparing its historical volatility, BAE Systems PLC is 3.32 times less risky than Singapore Technologies. The pink sheet trades about -0.49 of its potential returns per unit of risk. The Singapore Technologies Engineering is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  331.00  in Singapore Technologies Engineering on October 5, 2024 and sell it today you would earn a total of  5.00  from holding Singapore Technologies Engineering or generate 1.51% 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.  Singapore Technologies Enginee

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 February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Singapore Technologies

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Singapore Technologies Engineering are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward-looking signals, Singapore Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BAE Systems and Singapore Technologies

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

The idea behind BAE Systems PLC and Singapore Technologies Engineering 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 Commodity Directory module to find actively traded commodities issued by global exchanges.