Correlation Between Erste Group and NEXA RESOURCES

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

Diversification Opportunities for Erste Group and NEXA RESOURCES

0.83

Correlation Coefficient

Erste Group  NEXA RESOURCES

Very poor diversification

The 3 months correlation between Erste and NEXA is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and NEXA RESOURCES SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NEXA RESOURCES SA 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 NEXA RESOURCES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NEXA RESOURCES SA has no effect on the direction of Erste Group i.e., Erste Group and NEXA RESOURCES go up and down completely randomly.

Pair Corralation between Erste Group and NEXA RESOURCES

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 0.62 times more return on investment than NEXA RESOURCES. However, Erste Group Bank is 1.62 times less risky than NEXA RESOURCES. It trades about 0.1 of its potential returns per unit of risk. NEXA RESOURCES SA is currently generating about 0.03 per unit of risk. If you would invest  2,889  in Erste Group Bank on October 4, 2024 and sell it today you would earn a total of  3,019  from holding Erste Group Bank or generate 104.5% 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.  NEXA RESOURCES SA

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.

NEXA RESOURCES SA

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in NEXA RESOURCES SA are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, NEXA RESOURCES reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erste Group and NEXA RESOURCES

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

The idea behind Erste Group Bank and NEXA RESOURCES SA 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.