Correlation Between Erste Group and DBS Group

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

Diversification Opportunities for Erste Group and DBS Group

0.81

Correlation Coefficient

Erste Group  DBS Group

Very poor diversification

The 3 months correlation between Erste and DBS is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and DBS Group Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DBS Group Holdings 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 DBS Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DBS Group Holdings has no effect on the direction of Erste Group i.e., Erste Group and DBS Group go up and down completely randomly.

Pair Corralation between Erste Group and DBS Group

Assuming the 90 days horizon Erste Group Bank is expected to generate 2.73 times more return on investment than DBS Group. However, Erste Group is 2.73 times more volatile than DBS Group Holdings. It trades about 0.14 of its potential returns per unit of risk. DBS Group Holdings is currently generating about 0.11 per unit of risk. If you would invest  3,048  in Erste Group Bank on December 19, 2024 and sell it today you would earn a total of  645.00  from holding Erste Group Bank or generate 21.16% 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.  DBS Group Holdings

Erste Group Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Erste Group showed solid returns over the last few months and may actually be approaching a breakup point.

DBS Group Holdings

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in DBS Group Holdings are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, DBS Group may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Erste Group and DBS Group

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

The idea behind Erste Group Bank and DBS Group Holdings 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.