Correlation Between Magyar Telekom and BASF SE

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

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

Diversification Opportunities for Magyar Telekom and BASF SE

-0.3

Correlation Coefficient

Magyar Telekom  BASF SE

Very good diversification

The 3 months correlation between Magyar and BASF is -0.3. Overlapping area represents the amount of risk that can be diversified away by holding Magyar Telekom PLC and BASF SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE and Magyar Telekom 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 Magyar Telekom PLC 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 Magyar Telekom i.e., Magyar Telekom and BASF SE go up and down completely randomly.

Pair Corralation between Magyar Telekom and BASF SE

Assuming the 90 days trading horizon Magyar Telekom PLC is expected to generate 0.43 times more return on investment than BASF SE. However, Magyar Telekom PLC is 2.32 times less risky than BASF SE. It trades about 0.39 of its potential returns per unit of risk. BASF SE is currently generating about -0.09 per unit of risk. If you would invest  108,400  in Magyar Telekom PLC on October 20, 2024 and sell it today you would earn a total of  28,200  from holding Magyar Telekom PLC or generate 26.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	40.35%
Values	Daily Returns

Magyar Telekom PLC  vs.  BASF SE

Magyar Telekom PLC

Risk-Adjusted Performance

30 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Magyar Telekom PLC are ranked lower than 30 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Magyar Telekom unveiled solid returns over the last few months and may actually be approaching a breakup point.

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. In spite of uncertain performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Pair Trading with Magyar Telekom and BASF SE

The main advantage of trading using opposite Magyar Telekom and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Magyar Telekom 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 Magyar Telekom PLC 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.

Check out your portfolio center.

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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.