Correlation Between Bucharest BET-NG and SBF 120

Can any of the company-specific risk be diversified away by investing in both Bucharest BET-NG and SBF 120 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 SBF 120 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 SBF 120, you can compare the effects of market volatilities on Bucharest BET-NG and SBF 120 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 SBF 120. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bucharest BET-NG and SBF 120.

Diversification Opportunities for Bucharest BET-NG and SBF 120

0.48

Correlation Coefficient

Bucharest BET-NG  SBF 120

Very weak diversification

The 3 months correlation between Bucharest and SBF is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Bucharest BET-NG and SBF 120 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SBF 120 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 SBF 120. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SBF 120 has no effect on the direction of Bucharest BET-NG i.e., Bucharest BET-NG and SBF 120 go up and down completely randomly.

Pair Corralation between Bucharest BET-NG and SBF 120

Assuming the 90 days trading horizon Bucharest BET-NG is expected to under-perform the SBF 120. But the index apears to be less risky and, when comparing its historical volatility, Bucharest BET-NG is 1.42 times less risky than SBF 120. The index trades about -0.15 of its potential returns per unit of risk. The SBF 120 is currently generating about -0.09 of returns per unit of risk over similar time horizon. If you would invest  579,011  in SBF 120 on September 1, 2024 and sell it today you would lose (30,388) from holding SBF 120 or give up 5.25% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.48%
Values	Daily Returns

Bucharest BET-NG  vs.  SBF 120

Pair Trading with Bucharest BET-NG and SBF 120

The main advantage of trading using opposite Bucharest BET-NG and SBF 120 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bucharest BET-NG position performs unexpectedly, SBF 120 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 SBF 120 will offset losses from the drop in SBF 120's long position.

The idea behind Bucharest BET-NG and SBF 120 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.