Correlation Between Erste Group and IMPERIAL TOBACCO

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

Diversification Opportunities for Erste Group and IMPERIAL TOBACCO

0.76

Correlation Coefficient

Erste Group  IMPERIAL TOBACCO

Poor diversification

The 3 months correlation between Erste and IMPERIAL is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and IMPERIAL TOBACCO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IMPERIAL TOBACCO 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 IMPERIAL TOBACCO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IMPERIAL TOBACCO has no effect on the direction of Erste Group i.e., Erste Group and IMPERIAL TOBACCO go up and down completely randomly.

Pair Corralation between Erste Group and IMPERIAL TOBACCO

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 1.34 times more return on investment than IMPERIAL TOBACCO. However, Erste Group is 1.34 times more volatile than IMPERIAL TOBACCO . It trades about 0.3 of its potential returns per unit of risk. IMPERIAL TOBACCO is currently generating about 0.23 per unit of risk. If you would invest  4,893  in Erste Group Bank on October 25, 2024 and sell it today you would earn a total of  1,265  from holding Erste Group Bank or generate 25.85% 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.  IMPERIAL TOBACCO

Erste Group Bank

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

IMPERIAL TOBACCO

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in IMPERIAL TOBACCO are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental drivers, IMPERIAL TOBACCO unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erste Group and IMPERIAL TOBACCO

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

The idea behind Erste Group Bank and IMPERIAL TOBACCO 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.