Correlation Between Norra Metals and BASF SE

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

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

Diversification Opportunities for Norra Metals and BASF SE

0.0

Correlation Coefficient

Norra Metals  BASF SE

Pay attention - limited upside

The 3 months correlation between Norra and BASF is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Norra Metals Corp 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 Norra Metals 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 Norra Metals Corp 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 Norra Metals i.e., Norra Metals and BASF SE go up and down completely randomly.

Pair Corralation between Norra Metals and BASF SE

Assuming the 90 days horizon Norra Metals Corp is expected to generate 31.33 times more return on investment than BASF SE. However, Norra Metals is 31.33 times more volatile than BASF SE ADR. It trades about 0.05 of its potential returns per unit of risk. BASF SE ADR is currently generating about 0.01 per unit of risk. If you would invest  4.24  in Norra Metals Corp on October 24, 2024 and sell it today you would lose (3.24) from holding Norra Metals Corp or give up 76.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	99.76%
Values	Daily Returns

Norra Metals Corp  vs.  BASF SE ADR

Norra Metals Corp

Risk-Adjusted Performance

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Very Weak

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

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 fairly strong technical and fundamental indicators, BASF SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Norra Metals and BASF SE

The main advantage of trading using opposite Norra Metals and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Norra Metals 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 Norra Metals Corp 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.