Correlation Between UniCredit SpA and BNP PARIBAS

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

By analyzing existing cross correlation between UniCredit SpA and BNP PARIBAS ADR, you can compare the effects of market volatilities on UniCredit SpA and BNP PARIBAS 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 UniCredit SpA with a short position of BNP PARIBAS. Check out your portfolio center. Please also check ongoing floating volatility patterns of UniCredit SpA and BNP PARIBAS.

Diversification Opportunities for UniCredit SpA and BNP PARIBAS

0.73

Correlation Coefficient

UniCredit SpA  BNP PARIBAS

Poor diversification

The 3 months correlation between UniCredit and BNP is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding UniCredit SpA and BNP PARIBAS ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BNP PARIBAS ADR and UniCredit SpA 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 UniCredit SpA are associated (or correlated) with BNP PARIBAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BNP PARIBAS ADR has no effect on the direction of UniCredit SpA i.e., UniCredit SpA and BNP PARIBAS go up and down completely randomly.

Pair Corralation between UniCredit SpA and BNP PARIBAS

Assuming the 90 days trading horizon UniCredit SpA is expected to generate 1.17 times more return on investment than BNP PARIBAS. However, UniCredit SpA is 1.17 times more volatile than BNP PARIBAS ADR. It trades about 0.3 of its potential returns per unit of risk. BNP PARIBAS ADR is currently generating about 0.34 per unit of risk. If you would invest  3,864  in UniCredit SpA on December 29, 2024 and sell it today you would earn a total of  1,600  from holding UniCredit SpA or generate 41.41% return on investment over 90 days.

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

UniCredit SpA  vs.  BNP PARIBAS ADR

UniCredit SpA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in UniCredit SpA are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile forward indicators, UniCredit SpA reported solid returns over the last few months and may actually be approaching a breakup point.

BNP PARIBAS ADR

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in BNP PARIBAS ADR are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BNP PARIBAS reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UniCredit SpA and BNP PARIBAS

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

The idea behind UniCredit SpA and BNP PARIBAS ADR 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.