Correlation Between Bucharest BET-NG and Med Life

Can any of the company-specific risk be diversified away by investing in both Bucharest BET-NG and Med Life 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 Bucharest BET-NG and Med Life into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bucharest BET-NG and Med Life SA, you can compare the effects of market volatilities on Bucharest BET-NG and Med Life 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 Bucharest BET-NG with a short position of Med Life. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bucharest BET-NG and Med Life.

Diversification Opportunities for Bucharest BET-NG and Med Life

0.64

Correlation Coefficient

Bucharest BET-NG  Med Life

Poor diversification

The 3 months correlation between Bucharest and Med is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Bucharest BET-NG and Med Life SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Med Life SA and Bucharest BET-NG 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 Bucharest BET-NG are associated (or correlated) with Med Life. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Med Life SA has no effect on the direction of Bucharest BET-NG i.e., Bucharest BET-NG and Med Life go up and down completely randomly.

Pair Corralation between Bucharest BET-NG and Med Life

Assuming the 90 days trading horizon Bucharest BET-NG is expected to generate 0.42 times more return on investment than Med Life. However, Bucharest BET-NG is 2.38 times less risky than Med Life. It trades about -0.03 of its potential returns per unit of risk. Med Life SA is currently generating about -0.02 per unit of risk. If you would invest  123,717  in Bucharest BET-NG on September 30, 2024 and sell it today you would lose (2,331) from holding Bucharest BET-NG or give up 1.88% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.41%
Values	Daily Returns

Bucharest BET-NG  vs.  Med Life SA

Pair Trading with Bucharest BET-NG and Med Life

The main advantage of trading using opposite Bucharest BET-NG and Med Life positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bucharest BET-NG position performs unexpectedly, Med Life 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 Med Life will offset losses from the drop in Med Life's long position.

The idea behind Bucharest BET-NG and Med Life SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.