Correlation Between Ford and BASF SE
Can any of the company-specific risk be diversified away by investing in both Ford and BASF SE 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 Ford and BASF SE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and BASF SE, you can compare the effects of market volatilities on Ford and BASF SE 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 Ford with a short position of BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and BASF SE.
Diversification Opportunities for Ford and BASF SE
Very good diversification
The 3 months correlation between Ford and BASF is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and BASF SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE and Ford 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 Ford Motor are associated (or correlated) with BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE has no effect on the direction of Ford i.e., Ford and BASF SE go up and down completely randomly.
Pair Corralation between Ford and BASF SE
Taking into account the 90-day investment horizon Ford Motor is expected to generate 1.65 times more return on investment than BASF SE. However, Ford is 1.65 times more volatile than BASF SE. It trades about 0.03 of its potential returns per unit of risk. BASF SE is currently generating about 0.02 per unit of risk. If you would invest 1,000.00 in Ford Motor on August 29, 2024 and sell it today you would earn a total of 110.00 from holding Ford Motor or generate 11.0% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 98.81% |
| Values | Daily Returns |
Ford Motor vs. BASF SE
Performance |
| Timeline |
| Ford Motor |
| BASF SE |
Ford and BASF SE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and BASF SE
The main advantage of trading using opposite Ford and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, BASF SE 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 BASF SE will offset losses from the drop in BASF SE's long position.The idea behind Ford Motor and BASF SE 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.| 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.
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