Correlation Between Deutsche Lufthansa and BASF SE

Can any of the company-specific risk be diversified away by investing in both Deutsche Lufthansa and BASF SE 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 Deutsche Lufthansa and BASF SE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Deutsche Lufthansa AG and BASF SE, you can compare the effects of market volatilities on Deutsche Lufthansa and BASF SE 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 Deutsche Lufthansa with a short position of BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Lufthansa and BASF SE.

Diversification Opportunities for Deutsche Lufthansa and BASF SE

0.48

Correlation Coefficient

Deutsche Lufthansa  BASF SE

Very weak diversification

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

Pair Corralation between Deutsche Lufthansa and BASF SE

Assuming the 90 days horizon Deutsche Lufthansa AG is expected to generate 1.09 times more return on investment than BASF SE. However, Deutsche Lufthansa is 1.09 times more volatile than BASF SE. It trades about 0.09 of its potential returns per unit of risk. BASF SE is currently generating about -0.02 per unit of risk. If you would invest  576.00  in Deutsche Lufthansa AG on September 3, 2024 and sell it today you would earn a total of  58.00  from holding Deutsche Lufthansa AG or generate 10.07% return on investment over 90 days.

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

Deutsche Lufthansa AG  vs.  BASF SE

Deutsche Lufthansa

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Lufthansa AG are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Deutsche Lufthansa may actually be approaching a critical reversion point that can send shares even higher in January 2025.

BASF SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE 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.

Pair Trading with Deutsche Lufthansa and BASF SE

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

The idea behind Deutsche Lufthansa AG and BASF SE 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.