Correlation Between Swiss Re and Basilea Pharmaceutica

Can any of the company-specific risk be diversified away by investing in both Swiss Re and Basilea Pharmaceutica 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 Swiss Re and Basilea Pharmaceutica into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Swiss Re AG and Basilea Pharmaceutica AG, you can compare the effects of market volatilities on Swiss Re and Basilea Pharmaceutica 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 Swiss Re with a short position of Basilea Pharmaceutica. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Re and Basilea Pharmaceutica.

Diversification Opportunities for Swiss Re and Basilea Pharmaceutica

0.31

Correlation Coefficient

Swiss Re  Basilea Pharmaceutica

Weak diversification

The 3 months correlation between Swiss and Basilea is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Re AG and Basilea Pharmaceutica AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Basilea Pharmaceutica and Swiss Re 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 Swiss Re AG are associated (or correlated) with Basilea Pharmaceutica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Basilea Pharmaceutica has no effect on the direction of Swiss Re i.e., Swiss Re and Basilea Pharmaceutica go up and down completely randomly.

Pair Corralation between Swiss Re and Basilea Pharmaceutica

Assuming the 90 days trading horizon Swiss Re is expected to generate 1.66 times less return on investment than Basilea Pharmaceutica. But when comparing it to its historical volatility, Swiss Re AG is 1.54 times less risky than Basilea Pharmaceutica. It trades about 0.16 of its potential returns per unit of risk. Basilea Pharmaceutica AG is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  4,010  in Basilea Pharmaceutica AG on December 4, 2024 and sell it today you would earn a total of  750.00  from holding Basilea Pharmaceutica AG or generate 18.7% return on investment over 90 days.

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

Swiss Re AG  vs.  Basilea Pharmaceutica AG

Swiss Re AG

Risk-Adjusted Performance

OK

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

Basilea Pharmaceutica

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Basilea Pharmaceutica AG are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Basilea Pharmaceutica showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Swiss Re and Basilea Pharmaceutica

The main advantage of trading using opposite Swiss Re and Basilea Pharmaceutica positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Swiss Re position performs unexpectedly, Basilea Pharmaceutica 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 Basilea Pharmaceutica will offset losses from the drop in Basilea Pharmaceutica's long position.

The idea behind Swiss Re AG and Basilea Pharmaceutica AG 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 Transaction History module to view history of all your transactions and understand their impact on performance.