Correlation Between Unity Software and BAE Systems

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

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

Diversification Opportunities for Unity Software and BAE Systems

0.03

Correlation Coefficient

Unity Software  BAE Systems

Significant diversification

The 3 months correlation between Unity and BAE is 0.03. Overlapping area represents the amount of risk that can be diversified away by holding Unity Software 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 Unity Software 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 Unity Software 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 Unity Software i.e., Unity Software and BAE Systems go up and down completely randomly.

Pair Corralation between Unity Software and BAE Systems

Taking into account the 90-day investment horizon Unity Software is expected to generate 14.9 times less return on investment than BAE Systems. In addition to that, Unity Software is 1.68 times more volatile than BAE Systems PLC. It trades about 0.01 of its total potential returns per unit of risk. BAE Systems PLC is currently generating about 0.19 per unit of volatility. If you would invest  5,797  in BAE Systems PLC on December 26, 2024 and sell it today you would earn a total of  2,488  from holding BAE Systems PLC or generate 42.92% return on investment over 90 days.

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

Unity Software  vs.  BAE Systems PLC

Unity Software

Risk-Adjusted Performance

Very Weak

Over the last 90 days Unity Software has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Unity Software is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

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 15 (%) 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.

Pair Trading with Unity Software and BAE Systems

The main advantage of trading using opposite Unity Software and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Unity Software 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 Unity Software 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.