Correlation Between BM European and Target

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

By analyzing existing cross correlation between BM European Value and Target, you can compare the effects of market volatilities on BM European and Target 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 BM European with a short position of Target. Check out your portfolio center. Please also check ongoing floating volatility patterns of BM European and Target.

Diversification Opportunities for BM European and Target

0.71

Correlation Coefficient

BM European  Target

Poor diversification

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

Pair Corralation between BM European and Target

Assuming the 90 days horizon BM European Value is expected to generate 2.24 times more return on investment than Target. However, BM European is 2.24 times more volatile than Target. It trades about -0.09 of its potential returns per unit of risk. Target is currently generating about -0.23 per unit of risk. If you would invest  443.00  in BM European Value on December 28, 2024 and sell it today you would lose (103.00) from holding BM European Value or give up 23.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

BM European Value  vs.  Target

BM European Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days BM European Value has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Target

Risk-Adjusted Performance

Very Weak

Over the last 90 days Target has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's technical and fundamental indicators remain comparatively stable which may send shares a bit higher in April 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with BM European and Target

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

The idea behind BM European Value and Target 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.