Correlation Between BASF SE and Orbia Advance

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

Diversification Opportunities for BASF SE and Orbia Advance

0.7

Correlation Coefficient

BASF SE  Orbia Advance

Poor diversification

The 3 months correlation between BASF and Orbia is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding BASF SE NA and Orbia Advance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Orbia Advance 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 Orbia Advance. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Orbia Advance has no effect on the direction of BASF SE i.e., BASF SE and Orbia Advance go up and down completely randomly.

Pair Corralation between BASF SE and Orbia Advance

Assuming the 90 days horizon BASF SE NA is expected to generate 1.16 times more return on investment than Orbia Advance. However, BASF SE is 1.16 times more volatile than Orbia Advance. It trades about 0.01 of its potential returns per unit of risk. Orbia Advance is currently generating about -0.13 per unit of risk. If you would invest  4,751  in BASF SE NA on September 12, 2024 and sell it today you would lose (51.00) from holding BASF SE NA or give up 1.07% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

BASF SE NA  vs.  Orbia Advance

BASF SE NA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE NA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BASF SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Orbia Advance

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Orbia Advance has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with BASF SE and Orbia Advance

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

The idea behind BASF SE NA and Orbia Advance 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.