Correlation Between BASF SE and Green Plains

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

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

Diversification Opportunities for BASF SE and Green Plains

0.65

Correlation Coefficient

BASF SE  Green Plains

Poor diversification

The 3 months correlation between BASF and Green is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE NA and Green Plains Renewable in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Green Plains Renewable 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 NA are associated (or correlated) with Green Plains. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Green Plains Renewable has no effect on the direction of BASF SE i.e., BASF SE and Green Plains go up and down completely randomly.

Pair Corralation between BASF SE and Green Plains

Assuming the 90 days horizon BASF SE NA is expected to generate 0.64 times more return on investment than Green Plains. However, BASF SE NA is 1.56 times less risky than Green Plains. It trades about -0.05 of its potential returns per unit of risk. Green Plains Renewable is currently generating about -0.08 per unit of risk. If you would invest  5,001  in BASF SE NA on August 30, 2024 and sell it today you would lose (507.00) from holding BASF SE NA or give up 10.14% of portfolio value over 90 days.

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

BASF SE NA  vs.  Green Plains Renewable

BASF SE NA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE NA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Green Plains Renewable

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Green Plains Renewable has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in December 2024. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Pair Trading with BASF SE and Green Plains

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

The idea behind BASF SE NA and Green Plains Renewable 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.