Correlation Between Sembcorp Marine and BAE Systems

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

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

Diversification Opportunities for Sembcorp Marine and BAE Systems

-0.01

Correlation Coefficient

Sembcorp Marine  BAE Systems

Good diversification

The 3 months correlation between Sembcorp and BAE is -0.01. Overlapping area represents the amount of risk that can be diversified away by holding Sembcorp Marine 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 Sembcorp Marine 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 Sembcorp Marine 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 Sembcorp Marine i.e., Sembcorp Marine and BAE Systems go up and down completely randomly.

Pair Corralation between Sembcorp Marine and BAE Systems

Assuming the 90 days horizon Sembcorp Marine is expected to generate 3.39 times more return on investment than BAE Systems. However, Sembcorp Marine is 3.39 times more volatile than BAE Systems PLC. It trades about 0.04 of its potential returns per unit of risk. BAE Systems PLC is currently generating about 0.0 per unit of risk. If you would invest  154.00  in Sembcorp Marine on May 17, 2025 and sell it today you would earn a total of  6.00  from holding Sembcorp Marine or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Sembcorp Marine  vs.  BAE Systems PLC

Sembcorp Marine

Risk-Adjusted Performance

Soft

Compared to the overall equity markets, risk-adjusted returns on investments in Sembcorp Marine are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile primary indicators, Sembcorp Marine reported solid returns over the last few months and may actually be approaching a breakup point.

BAE Systems PLC

Risk-Adjusted Performance

Weakest

Over the last 90 days BAE Systems PLC has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BAE Systems is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Sembcorp Marine and BAE Systems

The main advantage of trading using opposite Sembcorp Marine and BAE Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sembcorp Marine 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 Sembcorp Marine 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 Stocks Directory module to find actively traded stocks across global markets.