Correlation Between BAE SYSTEMS and RENEWI PLC

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

Diversification Opportunities for BAE SYSTEMS and RENEWI PLC

0.25
  Correlation Coefficient

Modest diversification

The 3 months correlation between BAE SYSTEMS and RENEWI is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding BAE SYSTEMS PLC ORD 2 5P and RENEWI PLC ORD 10P in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RENEWI PLC ORD 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 RENEWI PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RENEWI PLC ORD has no effect on the direction of BAE SYSTEMS i.e., BAE SYSTEMS and RENEWI PLC go up and down completely randomly.

Pair Corralation between BAE SYSTEMS and RENEWI PLC

Given the investment horizon of 90 days BAE SYSTEMS PLC is expected to generate 0.87 times more return on investment than RENEWI PLC. However, BAE SYSTEMS PLC is 1.15 times less risky than RENEWI PLC. It trades about 0.11 of its potential returns per unit of risk. RENEWI PLC ORD is currently generating about -0.71 per unit of risk. If you would invest  78,740  in BAE SYSTEMS PLC on July 5, 2022 and sell it today you would earn a total of  1,760  from holding BAE SYSTEMS PLC or generate 2.24% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy65.0%
ValuesDaily Returns

BAE SYSTEMS PLC ORD 2 5P  vs.  RENEWI PLC ORD 10P

 Performance (%) 
       Timeline  
BAE SYSTEMS PLC 
BAE SYSTEMS Performance
0 of 100
Over the last 90 days BAE SYSTEMS PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, BAE SYSTEMS is not utilizing all of its potentials. The new stock price chaos, may contribute to medium-term losses for the stakeholders.
RENEWI PLC ORD 
RENEWI Performance
0 of 100
Over the last 90 days RENEWI PLC ORD has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively steady which may send shares a bit higher in November 2022. The new chaos may also be a sign of medium-term up-swing for the company stakeholders.

RENEWI Price Channel

BAE SYSTEMS and RENEWI PLC Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with BAE SYSTEMS and RENEWI PLC

The main advantage of trading using opposite BAE SYSTEMS and RENEWI PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BAE SYSTEMS position performs unexpectedly, RENEWI PLC 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 RENEWI PLC will offset losses from the drop in RENEWI PLC's long position.
BAE SYSTEMS vs. TCS GROUP HOLDING
The idea behind BAE SYSTEMS PLC and RENEWI PLC ORD 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.
Check out your portfolio center. 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.

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