Correlation Between BASF SE and Solvay SA

Can any of the company-specific risk be diversified away by investing in both BASF SE and Solvay SA 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 Solvay SA 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 Solvay SA ADR, you can compare the effects of market volatilities on BASF SE and Solvay SA 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 Solvay SA. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and Solvay SA.

Diversification Opportunities for BASF SE and Solvay SA

0.71

Correlation Coefficient

BASF SE  Solvay SA

Poor diversification

The 3 months correlation between BASF and Solvay is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE ADR and Solvay SA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Solvay SA ADR 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 Solvay SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Solvay SA ADR has no effect on the direction of BASF SE i.e., BASF SE and Solvay SA go up and down completely randomly.

Pair Corralation between BASF SE and Solvay SA

Assuming the 90 days horizon BASF SE ADR is expected to generate 1.04 times more return on investment than Solvay SA. However, BASF SE is 1.04 times more volatile than Solvay SA ADR. It trades about 0.15 of its potential returns per unit of risk. Solvay SA ADR is currently generating about 0.12 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  267.00  from holding BASF SE ADR or generate 24.23% return on investment over 90 days.

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

BASF SE ADR  vs.  Solvay SA ADR

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 12 (%) 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.

Solvay SA ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Solvay SA ADR are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Solvay SA showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BASF SE and Solvay SA

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

The idea behind BASF SE ADR and Solvay SA ADR 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.