Correlation Between Valhi and BASF SE
Can any of the company-specific risk be diversified away by investing in both Valhi 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 Valhi and BASF SE into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Valhi Inc and BASF SE ADR, you can compare the effects of market volatilities on Valhi 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 Valhi with a short position of BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Valhi and BASF SE.
Diversification Opportunities for Valhi and BASF SE
Very weak diversification
The 3 months correlation between Valhi and BASF is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Valhi Inc and BASF SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE ADR and Valhi 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 Valhi Inc 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 ADR has no effect on the direction of Valhi i.e., Valhi and BASF SE go up and down completely randomly.
Pair Corralation between Valhi and BASF SE
Considering the 90-day investment horizon Valhi Inc is expected to generate 2.38 times more return on investment than BASF SE. However, Valhi is 2.38 times more volatile than BASF SE ADR. It trades about 0.06 of its potential returns per unit of risk. BASF SE ADR is currently generating about 0.0 per unit of risk. If you would invest 1,372 in Valhi Inc on August 31, 2024 and sell it today you would earn a total of 1,188 from holding Valhi Inc or generate 86.59% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Valhi Inc vs. BASF SE ADR
Performance |
| Timeline |
| Valhi Inc |
| BASF SE ADR |
Valhi and BASF SE Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Valhi and BASF SE
The main advantage of trading using opposite Valhi and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Valhi 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 Valhi Inc and BASF SE ADR 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. Shin Etsu Chemical Co | BASF SE vs. Shin Etsu Chemical Co | BASF SE vs. First Graphene | BASF SE vs. Huntsman |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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