Correlation Between Monks Investment and BAE Systems

Can any of the company-specific risk be diversified away by investing in both Monks Investment and BAE Systems 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 Monks Investment and BAE Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Monks Investment Trust and BAE Systems plc, you can compare the effects of market volatilities on Monks Investment and BAE Systems 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 Monks Investment with a short position of BAE Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Monks Investment and BAE Systems.

Diversification Opportunities for Monks Investment and BAE Systems

-0.44

Correlation Coefficient

Monks Investment  BAE Systems

Very good diversification

The 3 months correlation between Monks and BAE is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Monks Investment Trust and BAE Systems plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BAE Systems plc and Monks Investment 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 Monks Investment Trust are associated (or correlated) with BAE Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BAE Systems plc has no effect on the direction of Monks Investment i.e., Monks Investment and BAE Systems go up and down completely randomly.

Pair Corralation between Monks Investment and BAE Systems

Assuming the 90 days trading horizon Monks Investment Trust is expected to generate 0.56 times more return on investment than BAE Systems. However, Monks Investment Trust is 1.78 times less risky than BAE Systems. It trades about 0.18 of its potential returns per unit of risk. BAE Systems plc is currently generating about -0.03 per unit of risk. If you would invest  119,800  in Monks Investment Trust on October 25, 2024 and sell it today you would earn a total of  12,200  from holding Monks Investment Trust or generate 10.18% return on investment over 90 days.

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

Monks Investment Trust  vs.  BAE Systems plc

Monks Investment Trust

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Monks Investment Trust are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Monks Investment may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 rather sound basic indicators, BAE Systems is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Monks Investment and BAE Systems

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

The idea behind Monks Investment Trust and BAE Systems plc 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.