Correlation Between Erste Group and X-FAB Silicon

Can any of the company-specific risk be diversified away by investing in both Erste Group and X-FAB Silicon 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 Erste Group and X-FAB Silicon into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Erste Group Bank and X FAB Silicon Foundries, you can compare the effects of market volatilities on Erste Group and X-FAB Silicon 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 Erste Group with a short position of X-FAB Silicon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erste Group and X-FAB Silicon.

Diversification Opportunities for Erste Group and X-FAB Silicon

0.33

Correlation Coefficient

Erste Group  X-FAB Silicon

Weak diversification

The 3 months correlation between Erste and X-FAB is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and X FAB Silicon Foundries in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on X FAB Silicon and Erste Group 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 Erste Group Bank are associated (or correlated) with X-FAB Silicon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of X FAB Silicon has no effect on the direction of Erste Group i.e., Erste Group and X-FAB Silicon go up and down completely randomly.

Pair Corralation between Erste Group and X-FAB Silicon

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 0.38 times more return on investment than X-FAB Silicon. However, Erste Group Bank is 2.66 times less risky than X-FAB Silicon. It trades about 0.11 of its potential returns per unit of risk. X FAB Silicon Foundries is currently generating about -0.01 per unit of risk. If you would invest  3,204  in Erste Group Bank on November 20, 2024 and sell it today you would earn a total of  3,557  from holding Erste Group Bank or generate 111.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.81%
Values	Daily Returns

Erste Group Bank  vs.  X FAB Silicon Foundries

Erste Group Bank

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

X FAB Silicon

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in X FAB Silicon Foundries are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, X-FAB Silicon unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erste Group and X-FAB Silicon

The main advantage of trading using opposite Erste Group and X-FAB Silicon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Erste Group position performs unexpectedly, X-FAB Silicon 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 X-FAB Silicon will offset losses from the drop in X-FAB Silicon's long position.

The idea behind Erste Group Bank and X FAB Silicon Foundries 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.