Correlation Between Reckitt Benckiser and BASF SE

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

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

Diversification Opportunities for Reckitt Benckiser and BASF SE

0.86

Correlation Coefficient

Reckitt Benckiser  BASF SE

Very poor diversification

The 3 months correlation between Reckitt and BASF is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Reckitt Benckiser Group 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 Reckitt Benckiser 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 Reckitt Benckiser Group 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 Reckitt Benckiser i.e., Reckitt Benckiser and BASF SE go up and down completely randomly.

Pair Corralation between Reckitt Benckiser and BASF SE

Assuming the 90 days horizon Reckitt Benckiser is expected to generate 2.79 times less return on investment than BASF SE. But when comparing it to its historical volatility, Reckitt Benckiser Group is 2.18 times less risky than BASF SE. It trades about 0.16 of its potential returns per unit of risk. BASF SE ADR is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  1,102  in BASF SE ADR on December 20, 2024 and sell it today you would earn a total of  352.00  from holding BASF SE ADR or generate 31.94% return on investment over 90 days.

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

Reckitt Benckiser Group  vs.  BASF SE ADR

Reckitt Benckiser

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Reckitt Benckiser Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Reckitt Benckiser may actually be approaching a critical reversion point that can send shares even higher in April 2025.

BASF SE ADR

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in BASF SE ADR are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile technical and fundamental indicators, BASF SE showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Reckitt Benckiser and BASF SE

The main advantage of trading using opposite Reckitt Benckiser and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Reckitt Benckiser 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 Reckitt Benckiser Group 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.