Correlation Between Renaissance Europe and BGF World

Can any of the company-specific risk be diversified away by investing in both Renaissance Europe and BGF World 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 World 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 World Gold, you can compare the effects of market volatilities on Renaissance Europe and BGF World 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 World. Check out your portfolio center. Please also check ongoing floating volatility patterns of Renaissance Europe and BGF World.

Diversification Opportunities for Renaissance Europe and BGF World

0.51

Correlation Coefficient

Renaissance Europe  BGF World

Very weak diversification

The 3 months correlation between Renaissance and BGF is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding Renaissance Europe C and BGF World Gold in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BGF World Gold 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 World. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BGF World Gold has no effect on the direction of Renaissance Europe i.e., Renaissance Europe and BGF World go up and down completely randomly.

Pair Corralation between Renaissance Europe and BGF World

Assuming the 90 days trading horizon Renaissance Europe is expected to generate 13.59 times less return on investment than BGF World. But when comparing it to its historical volatility, Renaissance Europe C is 1.92 times less risky than BGF World. It trades about 0.03 of its potential returns per unit of risk. BGF World Gold is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  3,758  in BGF World Gold on December 25, 2024 and sell it today you would earn a total of  823.00  from holding BGF World Gold or generate 21.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.33%
Values	Daily Returns

Renaissance Europe C  vs.  BGF World Gold

Renaissance Europe

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Renaissance Europe C are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, Renaissance Europe is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

BGF World Gold

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BGF World Gold are ranked lower than 16 (%) of all funds and portfolios of funds over the last 90 days. In spite of rather weak technical and fundamental indicators, BGF World exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Renaissance Europe and BGF World

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

The idea behind Renaissance Europe C and BGF World Gold 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.