Correlation Between BASF SE and Valhi
Can any of the company-specific risk be diversified away by investing in both BASF SE and Valhi 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 Valhi into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BASF SE NA and Valhi Inc, you can compare the effects of market volatilities on BASF SE and Valhi 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 Valhi. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and Valhi.
Diversification Opportunities for BASF SE and Valhi
Very weak diversification
The 3 months correlation between BASF and Valhi is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE NA and Valhi Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Valhi Inc 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 NA are associated (or correlated) with Valhi. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Valhi Inc has no effect on the direction of BASF SE i.e., BASF SE and Valhi go up and down completely randomly.
Pair Corralation between BASF SE and Valhi
Assuming the 90 days horizon BASF SE is expected to generate 3.49 times less return on investment than Valhi. But when comparing it to its historical volatility, BASF SE NA is 1.0 times less risky than Valhi. It trades about 0.06 of its potential returns per unit of risk. Valhi Inc is currently generating about 0.22 of returns per unit of risk over similar time horizon. If you would invest 1,294 in Valhi Inc on March 2, 2024 and sell it today you would earn a total of 651.00 from holding Valhi Inc or generate 50.31% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Weak |
Accuracy | 98.41% |
Values | Daily Returns |
BASF SE NA vs. Valhi Inc
Performance |
Timeline |
BASF SE NA |
Valhi Inc |
BASF SE and Valhi Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with BASF SE and Valhi
The main advantage of trading using opposite BASF SE and Valhi positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BASF SE position performs unexpectedly, Valhi 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 Valhi will offset losses from the drop in Valhi's long position.The idea behind BASF SE NA and Valhi Inc 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.
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