Correlation Between Bucharest BET-NG and Alumil Rom

Can any of the company-specific risk be diversified away by investing in both Bucharest BET-NG and Alumil Rom 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 Bucharest BET-NG and Alumil Rom into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bucharest BET-NG and Alumil Rom Industry, you can compare the effects of market volatilities on Bucharest BET-NG and Alumil Rom 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 Bucharest BET-NG with a short position of Alumil Rom. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bucharest BET-NG and Alumil Rom.

Diversification Opportunities for Bucharest BET-NG and Alumil Rom

0.8

Correlation Coefficient

Bucharest BET-NG  Alumil Rom

Very poor diversification

The 3 months correlation between Bucharest and Alumil is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Bucharest BET-NG and Alumil Rom Industry in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Alumil Rom Industry and Bucharest BET-NG 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 Bucharest BET-NG are associated (or correlated) with Alumil Rom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Alumil Rom Industry has no effect on the direction of Bucharest BET-NG i.e., Bucharest BET-NG and Alumil Rom go up and down completely randomly.

Pair Corralation between Bucharest BET-NG and Alumil Rom

Assuming the 90 days trading horizon Bucharest BET-NG is expected to generate 0.34 times more return on investment than Alumil Rom. However, Bucharest BET-NG is 2.96 times less risky than Alumil Rom. It trades about 0.0 of its potential returns per unit of risk. Alumil Rom Industry is currently generating about -0.02 per unit of risk. If you would invest  121,620  in Bucharest BET-NG on September 12, 2024 and sell it today you would lose (129.00) from holding Bucharest BET-NG or give up 0.11% of portfolio value over 90 days.

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

Bucharest BET-NG  vs.  Alumil Rom Industry

Pair Trading with Bucharest BET-NG and Alumil Rom

The main advantage of trading using opposite Bucharest BET-NG and Alumil Rom positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bucharest BET-NG position performs unexpectedly, Alumil Rom 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 Alumil Rom will offset losses from the drop in Alumil Rom's long position.

The idea behind Bucharest BET-NG and Alumil Rom Industry 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.