Correlation Between Bucharest BET-NG and Farmaceutica

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

Diversification Opportunities for Bucharest BET-NG and Farmaceutica

0.74

Correlation Coefficient

Bucharest BET-NG  Farmaceutica

Poor diversification

The 3 months correlation between Bucharest and Farmaceutica is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Bucharest BET-NG and Farmaceutica R in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Farmaceutica R 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 Farmaceutica. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Farmaceutica R has no effect on the direction of Bucharest BET-NG i.e., Bucharest BET-NG and Farmaceutica go up and down completely randomly.

Pair Corralation between Bucharest BET-NG and Farmaceutica

Assuming the 90 days trading horizon Bucharest BET-NG is expected to generate 0.44 times more return on investment than Farmaceutica. However, Bucharest BET-NG is 2.26 times less risky than Farmaceutica. It trades about -0.08 of its potential returns per unit of risk. Farmaceutica R is currently generating about -0.09 per unit of risk. If you would invest  123,914  in Bucharest BET-NG on September 12, 2024 and sell it today you would lose (2,423) from holding Bucharest BET-NG or give up 1.96% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Bucharest BET-NG  vs.  Farmaceutica R

Pair Trading with Bucharest BET-NG and Farmaceutica

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

The idea behind Bucharest BET-NG and Farmaceutica R 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.