Correlation Between Erste Group and Bank of Ireland Group PLC

Can any of the company-specific risk be diversified away by investing in both Erste Group and Bank of Ireland Group PLC 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 Bank of Ireland Group PLC 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 Bank of Ireland, you can compare the effects of market volatilities on Erste Group and Bank of Ireland Group PLC 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 Bank of Ireland Group PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erste Group and Bank of Ireland Group PLC.

Diversification Opportunities for Erste Group and Bank of Ireland Group PLC

0.83

Correlation Coefficient

Erste Group  Bank of Ireland Group PLC

Very poor diversification

The 3 months correlation between Erste and Bank is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and Bank of Ireland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Ireland Group PLC 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 Bank of Ireland Group PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Ireland Group PLC has no effect on the direction of Erste Group i.e., Erste Group and Bank of Ireland Group PLC go up and down completely randomly.

Pair Corralation between Erste Group and Bank of Ireland Group PLC

Assuming the 90 days trading horizon Erste Group is expected to generate 2.13 times less return on investment than Bank of Ireland Group PLC. In addition to that, Erste Group is 1.13 times more volatile than Bank of Ireland. It trades about 0.08 of its total potential returns per unit of risk. Bank of Ireland is currently generating about 0.2 per unit of volatility. If you would invest  864.00  in Bank of Ireland on December 30, 2024 and sell it today you would earn a total of  243.00  from holding Bank of Ireland or generate 28.13% return on investment over 90 days.

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

Erste Group Bank  vs.  Bank of Ireland

Erste Group Bank

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Erste Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Bank of Ireland Group PLC

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Bank of Ireland are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Bank of Ireland Group PLC unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erste Group and Bank of Ireland Group PLC

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

The idea behind Erste Group Bank and Bank of Ireland 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.