Correlation Between Airbus Group and Chemring Group

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

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

Diversification Opportunities for Airbus Group and Chemring Group

0.55

Correlation Coefficient

Airbus Group  Chemring Group

Very weak diversification

The 3 months correlation between Airbus and Chemring is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Airbus Group SE and Chemring Group PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chemring Group PLC and Airbus Group 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 Airbus Group SE are associated (or correlated) with Chemring Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chemring Group PLC has no effect on the direction of Airbus Group i.e., Airbus Group and Chemring Group go up and down completely randomly.

Pair Corralation between Airbus Group and Chemring Group

Assuming the 90 days horizon Airbus Group is expected to generate 2.75 times less return on investment than Chemring Group. In addition to that, Airbus Group is 4.16 times more volatile than Chemring Group PLC. It trades about 0.02 of its total potential returns per unit of risk. Chemring Group PLC is currently generating about 0.25 per unit of volatility. If you would invest  448.00  in Chemring Group PLC on February 15, 2024 and sell it today you would earn a total of  12.00  from holding Chemring Group PLC or generate 2.68% return on investment over 90 days.

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

Airbus Group SE  vs.  Chemring Group PLC

Airbus Group SE

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Airbus Group SE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Airbus Group may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Chemring Group PLC

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Chemring Group PLC are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Chemring Group is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Airbus Group and Chemring Group

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

The idea behind Airbus Group SE and Chemring Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.