Correlation Between Sociedad Química and BASF SE

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

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

Diversification Opportunities for Sociedad Química and BASF SE

0.43

Correlation Coefficient

Sociedad Química  BASF SE

Very weak diversification

The 3 months correlation between Sociedad and BASF is 0.43. Overlapping area represents the amount of risk that can be diversified away by holding Sociedad Qumica y and BASF SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE and Sociedad Química 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 Sociedad Qumica y 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 Sociedad Química i.e., Sociedad Química and BASF SE go up and down completely randomly.

Pair Corralation between Sociedad Química and BASF SE

Assuming the 90 days horizon Sociedad Química is expected to generate 2.43 times less return on investment than BASF SE. But when comparing it to its historical volatility, Sociedad Qumica y is 1.28 times less risky than BASF SE. It trades about 0.04 of its potential returns per unit of risk. BASF SE is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  1,040  in BASF SE on December 30, 2024 and sell it today you would earn a total of  140.00  from holding BASF SE or generate 13.46% return on investment over 90 days.

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

Sociedad Qumica y  vs.  BASF SE

Sociedad Qumica y

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Sociedad Qumica y are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Sociedad Química is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

BASF SE

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BASF SE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, BASF SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Sociedad Química and BASF SE

The main advantage of trading using opposite Sociedad Química and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Sociedad Química 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 Sociedad Qumica y 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.