Correlation Between Erste Group and Heidelberg Materials

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

Diversification Opportunities for Erste Group and Heidelberg Materials

0.8

Correlation Coefficient

Erste Group  Heidelberg Materials

Very poor diversification

The 3 months correlation between Erste and Heidelberg is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and Heidelberg Materials AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Heidelberg Materials 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 Heidelberg Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Heidelberg Materials has no effect on the direction of Erste Group i.e., Erste Group and Heidelberg Materials go up and down completely randomly.

Pair Corralation between Erste Group and Heidelberg Materials

Assuming the 90 days trading horizon Erste Group is expected to generate 1.06 times less return on investment than Heidelberg Materials. In addition to that, Erste Group is 1.05 times more volatile than Heidelberg Materials AG. It trades about 0.1 of its total potential returns per unit of risk. Heidelberg Materials AG is currently generating about 0.11 per unit of volatility. If you would invest  5,508  in Heidelberg Materials AG on October 4, 2024 and sell it today you would earn a total of  6,457  from holding Heidelberg Materials AG or generate 117.23% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.6%
Values	Daily Returns

Erste Group Bank  vs.  Heidelberg Materials AG

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 fragile basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Heidelberg Materials

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Heidelberg Materials AG are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Heidelberg Materials reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erste Group and Heidelberg Materials

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

The idea behind Erste Group Bank and Heidelberg Materials 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.

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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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.