Correlation Between First State and BM European

Can any of the company-specific risk be diversified away by investing in both First State and BM European 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 First State and BM European into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First State Financial and BM European Value, you can compare the effects of market volatilities on First State and BM European 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 First State with a short position of BM European. Check out your portfolio center. Please also check ongoing floating volatility patterns of First State and BM European.

Diversification Opportunities for First State and BM European

-0.8

Correlation Coefficient

First State  BM European

Pay attention - limited upside

The 3 months correlation between First and BMRRY is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding First State Financial and BM European Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BM European Value and First State 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 First State Financial are associated (or correlated) with BM European. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BM European Value has no effect on the direction of First State i.e., First State and BM European go up and down completely randomly.

Pair Corralation between First State and BM European

If you would invest  1,745  in BM European Value on September 28, 2024 and sell it today you would earn a total of  100.00  from holding BM European Value or generate 5.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	5.0%
Values	Daily Returns

First State Financial  vs.  BM European Value

First State Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

BM European Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BM European Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with First State and BM European

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

The idea behind First State Financial and BM European Value 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.