Correlation Between BASF SE and Chesapeake Energy

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

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

Diversification Opportunities for BASF SE and Chesapeake Energy

0.16

Correlation Coefficient

BASF SE  Chesapeake Energy

Average diversification

The 3 months correlation between BASF and Chesapeake is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE ADR and Chesapeake Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Chesapeake Energy and BASF SE 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 BASF SE ADR are associated (or correlated) with Chesapeake Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Chesapeake Energy has no effect on the direction of BASF SE i.e., BASF SE and Chesapeake Energy go up and down completely randomly.

Pair Corralation between BASF SE and Chesapeake Energy

Assuming the 90 days horizon BASF SE ADR is expected to under-perform the Chesapeake Energy. But the otc stock apears to be less risky and, when comparing its historical volatility, BASF SE ADR is 1.31 times less risky than Chesapeake Energy. The otc stock trades about -0.22 of its potential returns per unit of risk. The Chesapeake Energy is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  7,700  in Chesapeake Energy on March 12, 2024 and sell it today you would earn a total of  36.00  from holding Chesapeake Energy or generate 0.47% return on investment over 90 days.

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

BASF SE ADR  vs.  Chesapeake Energy

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 fairly strong technical and fundamental indicators, BASF SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Chesapeake Energy

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Chesapeake Energy are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating technical and fundamental indicators, Chesapeake Energy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with BASF SE and Chesapeake Energy

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

The idea behind BASF SE ADR and Chesapeake Energy 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.