Correlation Between Bucharest BET-NG and Fondo Mutuo

Can any of the company-specific risk be diversified away by investing in both Bucharest BET-NG and Fondo Mutuo 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 Fondo Mutuo 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 Fondo Mutuo ETF, you can compare the effects of market volatilities on Bucharest BET-NG and Fondo Mutuo 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 Fondo Mutuo. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bucharest BET-NG and Fondo Mutuo.

Diversification Opportunities for Bucharest BET-NG and Fondo Mutuo

-0.12

Correlation Coefficient

Bucharest BET-NG  Fondo Mutuo

Good diversification

The 3 months correlation between Bucharest and Fondo is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Bucharest BET-NG and Fondo Mutuo ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fondo Mutuo ETF 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 Fondo Mutuo. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fondo Mutuo ETF has no effect on the direction of Bucharest BET-NG i.e., Bucharest BET-NG and Fondo Mutuo go up and down completely randomly.

Pair Corralation between Bucharest BET-NG and Fondo Mutuo

Assuming the 90 days trading horizon Bucharest BET-NG is expected to under-perform the Fondo Mutuo. But the index apears to be less risky and, when comparing its historical volatility, Bucharest BET-NG is 1.06 times less risky than Fondo Mutuo. The index trades about -0.14 of its potential returns per unit of risk. The Fondo Mutuo ETF is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  138,700  in Fondo Mutuo ETF on August 30, 2024 and sell it today you would lose (2,060) from holding Fondo Mutuo ETF or give up 1.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	90.91%
Values	Daily Returns

Bucharest BET-NG  vs.  Fondo Mutuo ETF

Pair Trading with Bucharest BET-NG and Fondo Mutuo

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

The idea behind Bucharest BET-NG and Fondo Mutuo ETF 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.