Correlation Between China Resources and BASF SE

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

By analyzing existing cross correlation between China Resources Beer and BASF SE, you can compare the effects of market volatilities on China Resources and BASF SE 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 China Resources with a short position of BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Resources and BASF SE.

Diversification Opportunities for China Resources and BASF SE

0.63

Correlation Coefficient

China Resources  BASF SE

Poor diversification

The 3 months correlation between China and BASF is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding China Resources Beer and BASF SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE and China Resources 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 China Resources Beer are associated (or correlated) with BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE has no effect on the direction of China Resources i.e., China Resources and BASF SE go up and down completely randomly.

Pair Corralation between China Resources and BASF SE

Assuming the 90 days horizon China Resources Beer is expected to under-perform the BASF SE. In addition to that, China Resources is 1.44 times more volatile than BASF SE. It trades about -0.08 of its total potential returns per unit of risk. BASF SE is currently generating about -0.01 per unit of volatility. If you would invest  1,130  in BASF SE on October 23, 2024 and sell it today you would lose (30.00) from holding BASF SE or give up 2.65% of portfolio value over 90 days.

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

China Resources Beer  vs.  BASF SE

China Resources Beer

Risk-Adjusted Performance

0 of 100

Very Weak

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

BASF SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BASF SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with China Resources and BASF SE

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

The idea behind China Resources Beer and BASF SE 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.