Correlation Between BASF SE and Reckitt Benckiser

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

By analyzing existing cross correlation between BASF SE ADR and Reckitt Benckiser Group, you can compare the effects of market volatilities on BASF SE and Reckitt Benckiser 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 Reckitt Benckiser. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and Reckitt Benckiser.

Diversification Opportunities for BASF SE and Reckitt Benckiser

0.86

Correlation Coefficient

BASF SE  Reckitt Benckiser

Very poor diversification

The 3 months correlation between BASF and Reckitt is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE ADR and Reckitt Benckiser Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Reckitt Benckiser 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 ADR are associated (or correlated) with Reckitt Benckiser. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Reckitt Benckiser has no effect on the direction of BASF SE i.e., BASF SE and Reckitt Benckiser go up and down completely randomly.

Pair Corralation between BASF SE and Reckitt Benckiser

Assuming the 90 days horizon BASF SE ADR is expected to generate 2.18 times more return on investment than Reckitt Benckiser. However, BASF SE is 2.18 times more volatile than Reckitt Benckiser Group. It trades about 0.2 of its potential returns per unit of risk. Reckitt Benckiser Group is currently generating about 0.16 per unit of risk. If you would invest  1,102  in BASF SE ADR on December 20, 2024 and sell it today you would earn a total of  352.00  from holding BASF SE ADR or generate 31.94% return on investment over 90 days.

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

BASF SE ADR  vs.  Reckitt Benckiser Group

BASF SE ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BASF SE ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, BASF SE showed solid returns over the last few months and may actually be approaching a breakup point.

Reckitt Benckiser

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Reckitt Benckiser Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Reckitt Benckiser may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with BASF SE and Reckitt Benckiser

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

The idea behind BASF SE ADR and Reckitt Benckiser Group 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.