Correlation Between BASF SE and Solvay SA
Can any of the company-specific risk be diversified away by investing in both BASF SE and Solvay SA 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 Solvay SA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BASF SE NA and Solvay SA ADR, you can compare the effects of market volatilities on BASF SE and Solvay SA 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 Solvay SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and Solvay SA.
Diversification Opportunities for BASF SE and Solvay SA
Very weak diversification
The 3 months correlation between BASF and Solvay is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE NA and Solvay SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay SA ADR 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 NA are associated (or correlated) with Solvay SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay SA ADR has no effect on the direction of BASF SE i.e., BASF SE and Solvay SA go up and down completely randomly.
Pair Corralation between BASF SE and Solvay SA
Assuming the 90 days horizon BASF SE NA is expected to generate 1.15 times more return on investment than Solvay SA. However, BASF SE is 1.15 times more volatile than Solvay SA ADR. It trades about -0.17 of its potential returns per unit of risk. Solvay SA ADR is currently generating about -0.46 per unit of risk. If you would invest 4,980 in BASF SE NA on August 28, 2024 and sell it today you would lose (530.00) from holding BASF SE NA or give up 10.64% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
BASF SE NA vs. Solvay SA ADR
Performance |
| Timeline |
| BASF SE NA |
| Solvay SA ADR |
BASF SE and Solvay SA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BASF SE and Solvay SA
The main advantage of trading using opposite BASF SE and Solvay SA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BASF SE position performs unexpectedly, Solvay SA 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 Solvay SA will offset losses from the drop in Solvay SA's long position.| BASF SE vs. Shin Etsu Chemical Co | BASF SE vs. BASF SE ADR | BASF SE vs. Braskem SA Class | BASF SE vs. Celanese |
| Solvay SA vs. Origin Materials | Solvay SA vs. BASF SE NA | Solvay SA vs. Braskem SA Class | Solvay SA vs. Lsb Industries |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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