Correlation Between Tronox Holdings and BASF SE

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

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

Diversification Opportunities for Tronox Holdings and BASF SE

-0.78

Correlation Coefficient

Tronox Holdings  BASF SE

Pay attention - limited upside

The 3 months correlation between Tronox and BASF is -0.78. Overlapping area represents the amount of risk that can be diversified away by holding Tronox Holdings PLC and BASF SE NA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE NA and Tronox Holdings 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 Tronox Holdings PLC 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 NA has no effect on the direction of Tronox Holdings i.e., Tronox Holdings and BASF SE go up and down completely randomly.

Pair Corralation between Tronox Holdings and BASF SE

Given the investment horizon of 90 days Tronox Holdings PLC is expected to under-perform the BASF SE. But the stock apears to be less risky and, when comparing its historical volatility, Tronox Holdings PLC is 1.02 times less risky than BASF SE. The stock trades about -0.13 of its potential returns per unit of risk. The BASF SE NA is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  4,440  in BASF SE NA on December 29, 2024 and sell it today you would earn a total of  906.00  from holding BASF SE NA or generate 20.41% return on investment over 90 days.

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

Tronox Holdings PLC  vs.  BASF SE NA

Tronox Holdings PLC

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tronox Holdings PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unsteady performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

BASF SE NA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BASF SE NA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, BASF SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Tronox Holdings and BASF SE

The main advantage of trading using opposite Tronox Holdings and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tronox Holdings 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 Tronox Holdings PLC and BASF SE NA 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.