Correlation Between Renaissance Europe and BGF Euro

Can any of the company-specific risk be diversified away by investing in both Renaissance Europe and BGF Euro 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 Renaissance Europe and BGF Euro into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Renaissance Europe C and BGF Euro Markets, you can compare the effects of market volatilities on Renaissance Europe and BGF Euro 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 Renaissance Europe with a short position of BGF Euro. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renaissance Europe and BGF Euro.

Diversification Opportunities for Renaissance Europe and BGF Euro

0.6

Correlation Coefficient

Renaissance Europe  BGF Euro

Poor diversification

The 3 months correlation between Renaissance and BGF is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Renaissance Europe C and BGF Euro Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BGF Euro Markets and Renaissance Europe 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 Renaissance Europe C are associated (or correlated) with BGF Euro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BGF Euro Markets has no effect on the direction of Renaissance Europe i.e., Renaissance Europe and BGF Euro go up and down completely randomly.

Pair Corralation between Renaissance Europe and BGF Euro

Assuming the 90 days trading horizon Renaissance Europe C is expected to under-perform the BGF Euro. But the fund apears to be less risky and, when comparing its historical volatility, Renaissance Europe C is 1.28 times less risky than BGF Euro. The fund trades about -0.06 of its potential returns per unit of risk. The BGF Euro Markets is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,448  in BGF Euro Markets on September 23, 2024 and sell it today you would lose (20.00) from holding BGF Euro Markets or give up 0.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Renaissance Europe C  vs.  BGF Euro Markets

Renaissance Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renaissance Europe C has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, Renaissance Europe is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

BGF Euro Markets

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BGF Euro Markets are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather sound technical and fundamental indicators, BGF Euro is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Renaissance Europe and BGF Euro

The main advantage of trading using opposite Renaissance Europe and BGF Euro positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Renaissance Europe position performs unexpectedly, BGF Euro 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 BGF Euro will offset losses from the drop in BGF Euro's long position.

The idea behind Renaissance Europe C and BGF Euro Markets 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.