Correlation Between Solvay SA and BASF SE

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

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

Diversification Opportunities for Solvay SA and BASF SE

0.89

Correlation Coefficient

Solvay SA  BASF SE

Very poor diversification

The 3 months correlation between Solvay and BASF is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Solvay SA ADR 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 Solvay SA 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 Solvay SA ADR 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 Solvay SA i.e., Solvay SA and BASF SE go up and down completely randomly.

Pair Corralation between Solvay SA and BASF SE

Assuming the 90 days horizon Solvay SA ADR is expected to under-perform the BASF SE. In addition to that, Solvay SA is 2.85 times more volatile than BASF SE ADR. It trades about -0.01 of its total potential returns per unit of risk. BASF SE ADR is currently generating about 0.0 per unit of volatility. If you would invest  1,211  in BASF SE ADR on October 8, 2024 and sell it today you would lose (123.00) from holding BASF SE ADR or give up 10.16% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	96.84%
Values	Daily Returns

Solvay SA ADR  vs.  BASF SE ADR

Solvay SA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Solvay SA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of abnormal 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 Solvay SA and BASF SE

The main advantage of trading using opposite Solvay SA and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Solvay SA 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 Solvay SA ADR 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.