Correlation Between BASF SE and NordTelekom Telecommunicatio

Can any of the company-specific risk be diversified away by investing in both BASF SE and NordTelekom Telecommunicatio 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 BASF SE and NordTelekom Telecommunicatio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BASF SE and NordTelekom Telecommunications Service, you can compare the effects of market volatilities on BASF SE and NordTelekom Telecommunicatio 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 BASF SE with a short position of NordTelekom Telecommunicatio. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and NordTelekom Telecommunicatio.

Diversification Opportunities for BASF SE and NordTelekom Telecommunicatio

0.05

Correlation Coefficient

BASF SE  NordTelekom Telecommunicatio

Significant diversification

The 3 months correlation between BASF and NordTelekom is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE and NordTelekom Telecommunications in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NordTelekom Telecommunicatio and BASF SE 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 BASF SE are associated (or correlated) with NordTelekom Telecommunicatio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NordTelekom Telecommunicatio has no effect on the direction of BASF SE i.e., BASF SE and NordTelekom Telecommunicatio go up and down completely randomly.

Pair Corralation between BASF SE and NordTelekom Telecommunicatio

Assuming the 90 days trading horizon BASF SE is expected to generate 0.69 times more return on investment than NordTelekom Telecommunicatio. However, BASF SE is 1.45 times less risky than NordTelekom Telecommunicatio. It trades about 0.06 of its potential returns per unit of risk. NordTelekom Telecommunications Service is currently generating about -0.02 per unit of risk. If you would invest  1,799,400  in BASF SE on September 14, 2024 and sell it today you would earn a total of  65,000  from holding BASF SE or generate 3.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	49.12%
Values	Daily Returns

BASF SE  vs.  NordTelekom Telecommunications

BASF SE

Risk-Adjusted Performance

0 of 100

Insignificant

Over the last 90 days BASF SE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively unsteady basic indicators, BASF SE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NordTelekom Telecommunicatio

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NordTelekom Telecommunications Service has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with BASF SE and NordTelekom Telecommunicatio

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

The idea behind BASF SE and NordTelekom Telecommunications Service 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.