Correlation Between Erste Group and CLEAN ENERGY

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

Diversification Opportunities for Erste Group and CLEAN ENERGY

0.05

Correlation Coefficient

Erste Group  CLEAN ENERGY

Significant diversification

The 3 months correlation between Erste and CLEAN is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and CLEAN ENERGY FUELS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CLEAN ENERGY FUELS 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 CLEAN ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CLEAN ENERGY FUELS has no effect on the direction of Erste Group i.e., Erste Group and CLEAN ENERGY go up and down completely randomly.

Pair Corralation between Erste Group and CLEAN ENERGY

Assuming the 90 days trading horizon Erste Group is expected to generate 2.03 times less return on investment than CLEAN ENERGY. But when comparing it to its historical volatility, Erste Group Bank is 3.55 times less risky than CLEAN ENERGY. It trades about 0.28 of its potential returns per unit of risk. CLEAN ENERGY FUELS is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  250.00  in CLEAN ENERGY FUELS on October 26, 2024 and sell it today you would earn a total of  27.00  from holding CLEAN ENERGY FUELS or generate 10.8% return on investment over 90 days.

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

Erste Group Bank  vs.  CLEAN ENERGY FUELS

Erste Group Bank

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 24 (%) 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.

CLEAN ENERGY FUELS

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in CLEAN ENERGY FUELS are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, CLEAN ENERGY may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Erste Group and CLEAN ENERGY

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

The idea behind Erste Group Bank and CLEAN ENERGY FUELS 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.