Correlation Between Koninklijke BAM and Flow Traders

Can any of the company-specific risk be diversified away by investing in both Koninklijke BAM and Flow Traders 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 Koninklijke BAM and Flow Traders into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Koninklijke BAM Groep and Flow Traders BV, you can compare the effects of market volatilities on Koninklijke BAM and Flow Traders 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 Koninklijke BAM with a short position of Flow Traders. Check out your portfolio center. Please also check ongoing floating volatility patterns of Koninklijke BAM and Flow Traders.

Diversification Opportunities for Koninklijke BAM and Flow Traders

0.57

Correlation Coefficient

Koninklijke BAM  Flow Traders

Very weak diversification

The 3 months correlation between Koninklijke and Flow is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Koninklijke BAM Groep and Flow Traders BV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Flow Traders BV and Koninklijke BAM 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 Koninklijke BAM Groep are associated (or correlated) with Flow Traders. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Flow Traders BV has no effect on the direction of Koninklijke BAM i.e., Koninklijke BAM and Flow Traders go up and down completely randomly.

Pair Corralation between Koninklijke BAM and Flow Traders

Assuming the 90 days trading horizon Koninklijke BAM Groep is expected to generate 1.1 times more return on investment than Flow Traders. However, Koninklijke BAM is 1.1 times more volatile than Flow Traders BV. It trades about 0.17 of its potential returns per unit of risk. Flow Traders BV is currently generating about 0.17 per unit of risk. If you would invest  394.00  in Koninklijke BAM Groep on November 28, 2024 and sell it today you would earn a total of  99.00  from holding Koninklijke BAM Groep or generate 25.13% return on investment over 90 days.

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

Koninklijke BAM Groep  vs.  Flow Traders BV

Koninklijke BAM Groep

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Koninklijke BAM Groep are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain basic indicators, Koninklijke BAM sustained solid returns over the last few months and may actually be approaching a breakup point.

Flow Traders BV

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Flow Traders BV are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Flow Traders unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Koninklijke BAM and Flow Traders

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

The idea behind Koninklijke BAM Groep and Flow Traders BV 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.