Correlation Between BNP Paribas and US Bancorp

Can any of the company-specific risk be diversified away by investing in both BNP Paribas and US Bancorp 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 BNP Paribas and US Bancorp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BNP Paribas SA and US Bancorp, you can compare the effects of market volatilities on BNP Paribas and US Bancorp 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 BNP Paribas with a short position of US Bancorp. Check out your portfolio center. Please also check ongoing floating volatility patterns of BNP Paribas and US Bancorp.

Diversification Opportunities for BNP Paribas and US Bancorp

0.65

Correlation Coefficient

BNP Paribas  US Bancorp

Poor diversification

The 3 months correlation between BNP and USB is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding BNP Paribas SA and US Bancorp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on US Bancorp and BNP Paribas 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 BNP Paribas SA are associated (or correlated) with US Bancorp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of US Bancorp has no effect on the direction of BNP Paribas i.e., BNP Paribas and US Bancorp go up and down completely randomly.

Pair Corralation between BNP Paribas and US Bancorp

Assuming the 90 days horizon BNP Paribas is expected to generate 1.94 times less return on investment than US Bancorp. But when comparing it to its historical volatility, BNP Paribas SA is 1.43 times less risky than US Bancorp. It trades about 0.06 of its potential returns per unit of risk. US Bancorp is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,067  in US Bancorp on January 24, 2024 and sell it today you would earn a total of  1,038  from holding US Bancorp or generate 33.84% return on investment over 90 days.

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

BNP Paribas SA  vs.  US Bancorp

BNP Paribas SA

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in BNP Paribas SA are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, BNP Paribas may actually be approaching a critical reversion point that can send shares even higher in May 2024.

US Bancorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days US Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, US Bancorp is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with BNP Paribas and US Bancorp

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

The idea behind BNP Paribas SA and US Bancorp 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.