Correlation Between Bucharest BET-NG and Romcab SA

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

Diversification Opportunities for Bucharest BET-NG and Romcab SA

0.61

Correlation Coefficient

Bucharest BET-NG  Romcab SA

Poor diversification

The 3 months correlation between Bucharest and Romcab is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Bucharest BET-NG and Romcab SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Romcab SA 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 Romcab SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Romcab SA has no effect on the direction of Bucharest BET-NG i.e., Bucharest BET-NG and Romcab SA go up and down completely randomly.

Pair Corralation between Bucharest BET-NG and Romcab SA

Assuming the 90 days trading horizon Bucharest BET-NG is expected to generate 0.22 times more return on investment than Romcab SA. However, Bucharest BET-NG is 4.56 times less risky than Romcab SA. It trades about -0.04 of its potential returns per unit of risk. Romcab SA is currently generating about -0.11 per unit of risk. If you would invest  124,739  in Bucharest BET-NG on October 11, 2024 and sell it today you would lose (2,888) from holding Bucharest BET-NG or give up 2.32% of portfolio value over 90 days.

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

Bucharest BET-NG  vs.  Romcab SA

Pair Trading with Bucharest BET-NG and Romcab SA

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

The idea behind Bucharest BET-NG and Romcab SA 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.