Correlation Between Heineken and BASF SE

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

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

Diversification Opportunities for Heineken and BASF SE

0.93

Correlation Coefficient

Heineken  BASF SE

Almost no diversification

The 3 months correlation between Heineken and BASF is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Heineken NV and BASF SE ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE ADR and Heineken 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 Heineken NV 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 ADR has no effect on the direction of Heineken i.e., Heineken and BASF SE go up and down completely randomly.

Pair Corralation between Heineken and BASF SE

Assuming the 90 days horizon Heineken NV is expected to under-perform the BASF SE. But the otc stock apears to be less risky and, when comparing its historical volatility, Heineken NV is 1.27 times less risky than BASF SE. The otc stock trades about -0.04 of its potential returns per unit of risk. The BASF SE ADR is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,245  in BASF SE ADR on October 11, 2024 and sell it today you would lose (165.00) from holding BASF SE ADR or give up 13.25% of portfolio value over 90 days.

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

Heineken NV  vs.  BASF SE ADR

Heineken NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Heineken NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

BASF SE ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Heineken and BASF SE

The main advantage of trading using opposite Heineken and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Heineken 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 Heineken NV and BASF SE 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.