Correlation Between CNA Financial and BASF SE

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

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

Diversification Opportunities for CNA Financial and BASF SE

-0.32

Correlation Coefficient

CNA Financial  BASF SE

Very good diversification

The 3 months correlation between CNA and BASF is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding CNA Financial and BASF SE NA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE NA and CNA Financial 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 CNA Financial 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 NA has no effect on the direction of CNA Financial i.e., CNA Financial and BASF SE go up and down completely randomly.

Pair Corralation between CNA Financial and BASF SE

Considering the 90-day investment horizon CNA Financial is expected to under-perform the BASF SE. But the stock apears to be less risky and, when comparing its historical volatility, CNA Financial is 3.08 times less risky than BASF SE. The stock trades about -0.02 of its potential returns per unit of risk. The BASF SE NA is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,571  in BASF SE NA on February 11, 2024 and sell it today you would earn a total of  757.00  from holding BASF SE NA or generate 16.56% return on investment over 90 days.

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

CNA Financial  vs.  BASF SE NA

CNA Financial

Risk-Adjusted Performance

0 of 100

Very Weak

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

BASF SE NA

Risk-Adjusted Performance

6 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in BASF SE NA are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly conflicting basic indicators, BASF SE reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with CNA Financial and BASF SE

The main advantage of trading using opposite CNA Financial and BASF SE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if CNA Financial 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 CNA Financial and BASF SE NA 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.