Correlation Between BASF SE and Danone PK

Can any of the company-specific risk be diversified away by investing in both BASF SE and Danone PK 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 Danone PK 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 Danone PK, you can compare the effects of market volatilities on BASF SE and Danone PK 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 Danone PK. Check out your portfolio center. Please also check ongoing floating volatility patterns of BASF SE and Danone PK.

Diversification Opportunities for BASF SE and Danone PK

0.4

Correlation Coefficient

BASF SE  Danone PK

Very weak diversification

The 3 months correlation between BASF and Danone is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE ADR and Danone PK in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Danone PK 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 Danone PK. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Danone PK has no effect on the direction of BASF SE i.e., BASF SE and Danone PK go up and down completely randomly.

Pair Corralation between BASF SE and Danone PK

If you would invest  1,186  in BASF SE ADR on September 12, 2024 and sell it today you would lose (1.00) from holding BASF SE ADR or give up 0.08% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	1.59%
Values	Daily Returns

BASF SE ADR  vs.  Danone PK

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.

Danone PK

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Danone PK has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Danone PK is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BASF SE and Danone PK

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

The idea behind BASF SE ADR and Danone PK 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.