Correlation Between Erste Group and CapitaLand Investment

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

Diversification Opportunities for Erste Group and CapitaLand Investment

-0.89

Correlation Coefficient

Erste Group  CapitaLand Investment

Pay attention - limited upside

The 3 months correlation between Erste and CapitaLand is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and CapitaLand Investment Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CapitaLand Investment 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 CapitaLand Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CapitaLand Investment has no effect on the direction of Erste Group i.e., Erste Group and CapitaLand Investment go up and down completely randomly.

Pair Corralation between Erste Group and CapitaLand Investment

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 1.0 times more return on investment than CapitaLand Investment. However, Erste Group Bank is 1.0 times less risky than CapitaLand Investment. It trades about 0.1 of its potential returns per unit of risk. CapitaLand Investment Limited is currently generating about -0.03 per unit of risk. If you would invest  3,066  in Erste Group Bank on October 22, 2024 and sell it today you would earn a total of  3,104  from holding Erste Group Bank or generate 101.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	98.8%
Values	Daily Returns

Erste Group Bank  vs.  CapitaLand Investment Limited

Erste Group Bank

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 21 (%) 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.

CapitaLand Investment

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days CapitaLand Investment Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Erste Group and CapitaLand Investment

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

The idea behind Erste Group Bank and CapitaLand Investment Limited 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.