Correlation Between Erste Group and IAR SA

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

Diversification Opportunities for Erste Group and IAR SA

-0.41

Correlation Coefficient

Erste Group  IAR SA

Very good diversification

The 3 months correlation between Erste and IAR is -0.41. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and IAR SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAR 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 IAR SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAR SA has no effect on the direction of Erste Group i.e., Erste Group and IAR SA go up and down completely randomly.

Pair Corralation between Erste Group and IAR SA

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 1.44 times more return on investment than IAR SA. However, Erste Group is 1.44 times more volatile than IAR SA. It trades about 0.42 of its potential returns per unit of risk. IAR SA is currently generating about 0.0 per unit of risk. If you would invest  26,850  in Erste Group Bank on October 7, 2024 and sell it today you would earn a total of  2,150  from holding Erste Group Bank or generate 8.01% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Erste Group Bank  vs.  IAR SA

Erste Group Bank

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Erste Group displayed solid returns over the last few months and may actually be approaching a breakup point.

IAR SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IAR SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, IAR SA is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Erste Group and IAR SA

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

The idea behind Erste Group Bank and IAR 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.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.