Correlation Between BASF SE and Dow
Can any of the company-specific risk be diversified away by investing in both BASF SE and Dow 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 BASF SE and Dow into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BASF SE and Dow Inc, you can compare the effects of market volatilities on BASF SE and Dow 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 BASF SE with a short position of Dow. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and Dow.
Diversification Opportunities for BASF SE and Dow
Very poor diversification
The 3 months correlation between BASF and Dow is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE and Dow Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dow Inc and BASF SE 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 BASF SE are associated (or correlated) with Dow. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dow Inc has no effect on the direction of BASF SE i.e., BASF SE and Dow go up and down completely randomly.
Pair Corralation between BASF SE and Dow
Assuming the 90 days horizon BASF SE is expected to generate 1.16 times more return on investment than Dow. However, BASF SE is 1.16 times more volatile than Dow Inc. It trades about -0.05 of its potential returns per unit of risk. Dow Inc is currently generating about -0.09 per unit of risk. If you would invest 4,500 in BASF SE on August 25, 2024 and sell it today you would lose (290.00) from holding BASF SE or give up 6.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
BASF SE vs. Dow Inc
Performance |
| Timeline |
| BASF SE |
| Dow Inc |
BASF SE and Dow Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BASF SE and Dow
The main advantage of trading using opposite BASF SE and Dow positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BASF SE position performs unexpectedly, Dow 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 Dow will offset losses from the drop in Dow's long position.| BASF SE vs. Allianz SE | BASF SE vs. Siemens Aktiengesellschaft | BASF SE vs. Bayer AG NA | BASF SE vs. SAP SE |
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 the Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.
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