Correlation Between Erste Group and Adidas AG

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

Diversification Opportunities for Erste Group and Adidas AG

0.67

Correlation Coefficient

Erste Group  Adidas AG

Poor diversification

The 3 months correlation between Erste and Adidas is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and adidas AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on adidas AG 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 Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of adidas AG has no effect on the direction of Erste Group i.e., Erste Group and Adidas AG go up and down completely randomly.

Pair Corralation between Erste Group and Adidas AG

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 0.93 times more return on investment than Adidas AG. However, Erste Group Bank is 1.07 times less risky than Adidas AG. It trades about 0.28 of its potential returns per unit of risk. adidas AG is currently generating about -0.03 per unit of risk. If you would invest  5,492  in Erste Group Bank on October 10, 2024 and sell it today you would earn a total of  328.00  from holding Erste Group Bank or generate 5.97% return on investment over 90 days.

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

Erste Group Bank  vs.  adidas AG

Erste Group Bank

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

adidas AG

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in adidas AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Adidas AG is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Erste Group and Adidas AG

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

The idea behind Erste Group Bank and adidas AG 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.

Check out your portfolio center.

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 Center module to all portfolio management and optimization tools to improve performance of your portfolios.