Correlation Between Covestro ADR and Fuchs Petrolub

Can any of the company-specific risk be diversified away by investing in both Covestro ADR and Fuchs Petrolub 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 Covestro ADR and Fuchs Petrolub into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for Covestro ADR and Fuchs Petrolub

0.78

Correlation Coefficient

Covestro ADR  Fuchs Petrolub

Poor diversification

The 3 months correlation between Covestro and Fuchs is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Covestro ADR and Fuchs Petrolub SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fuchs Petrolub SE and Covestro ADR 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 Covestro ADR are associated (or correlated) with Fuchs Petrolub. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fuchs Petrolub SE has no effect on the direction of Covestro ADR i.e., Covestro ADR and Fuchs Petrolub go up and down completely randomly.

Pair Corralation between Covestro ADR and Fuchs Petrolub

Assuming the 90 days horizon Covestro ADR is expected to generate 21.2 times less return on investment than Fuchs Petrolub. But when comparing it to its historical volatility, Covestro ADR is 2.05 times less risky than Fuchs Petrolub. It trades about 0.01 of its potential returns per unit of risk. Fuchs Petrolub SE is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  1,114  in Fuchs Petrolub SE on November 29, 2024 and sell it today you would earn a total of  105.00  from holding Fuchs Petrolub SE or generate 9.43% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Covestro ADR  vs.  Fuchs Petrolub SE

Covestro ADR

Risk-Adjusted Performance

Weak

Over the last 90 days Covestro ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Covestro ADR is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Fuchs Petrolub SE

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Fuchs Petrolub SE are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Fuchs Petrolub may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Covestro ADR and Fuchs Petrolub

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

The idea behind Covestro ADR and Fuchs Petrolub SE 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.