Correlation Between Basic Materials and BB Seguridade

Can any of the company-specific risk be diversified away by investing in both Basic Materials and BB Seguridade 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 Basic Materials and BB Seguridade into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Basic Materials and BB Seguridade Participacoes, you can compare the effects of market volatilities on Basic Materials and BB Seguridade 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 Basic Materials with a short position of BB Seguridade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Basic Materials and BB Seguridade.

Diversification Opportunities for Basic Materials and BB Seguridade

0.11

Correlation Coefficient

Basic Materials  BB Seguridade

Average diversification

The 3 months correlation between Basic and BBSE3 is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Basic Materials and BB Seguridade Participacoes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BB Seguridade Partic and Basic Materials 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 Basic Materials are associated (or correlated) with BB Seguridade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BB Seguridade Partic has no effect on the direction of Basic Materials i.e., Basic Materials and BB Seguridade go up and down completely randomly.

Pair Corralation between Basic Materials and BB Seguridade

Assuming the 90 days trading horizon Basic Materials is expected to generate 0.87 times more return on investment than BB Seguridade. However, Basic Materials is 1.14 times less risky than BB Seguridade. It trades about 0.01 of its potential returns per unit of risk. BB Seguridade Participacoes is currently generating about -0.2 per unit of risk. If you would invest  514,830  in Basic Materials on April 23, 2025 and sell it today you would earn a total of  897.00  from holding Basic Materials or generate 0.17% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Basic Materials  vs.  BB Seguridade Participacoes

Pair Trading with Basic Materials and BB Seguridade

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

The idea behind Basic Materials and BB Seguridade Participacoes 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.