Correlation Between BAE Systems and Triumph

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

Diversification Opportunities for BAE Systems and Triumph

0.68

Correlation Coefficient

BAE Systems  Triumph

Poor diversification

The 3 months correlation between BAE and Triumph is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding BAE Systems PLC and Triumph Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Triumph Group 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 Triumph. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Triumph Group has no effect on the direction of BAE Systems i.e., BAE Systems and Triumph go up and down completely randomly.

Pair Corralation between BAE Systems and Triumph

Assuming the 90 days horizon BAE Systems PLC is expected to generate 0.77 times more return on investment than Triumph. However, BAE Systems PLC is 1.3 times less risky than Triumph. It trades about 0.19 of its potential returns per unit of risk. Triumph Group is currently generating about 0.13 per unit of risk. If you would invest  5,814  in BAE Systems PLC on December 27, 2024 and sell it today you would earn a total of  2,487  from holding BAE Systems PLC or generate 42.78% return on investment over 90 days.

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

BAE Systems PLC  vs.  Triumph Group

BAE Systems PLC

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BAE Systems PLC are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, BAE Systems showed solid returns over the last few months and may actually be approaching a breakup point.

Triumph Group

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Triumph Group are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak technical and fundamental indicators, Triumph demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BAE Systems and Triumph

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

The idea behind BAE Systems PLC and Triumph Group 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 CEOs Directory module to screen CEOs from public companies around the world.