Correlation Between Erste Group and Teraplast Bist

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

Diversification Opportunities for Erste Group and Teraplast Bist

-0.57

Correlation Coefficient

Erste Group  Teraplast Bist

Excellent diversification

The 3 months correlation between Erste and Teraplast is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and Teraplast Bist in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Teraplast Bist 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 Teraplast Bist. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Teraplast Bist has no effect on the direction of Erste Group i.e., Erste Group and Teraplast Bist go up and down completely randomly.

Pair Corralation between Erste Group and Teraplast Bist

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 1.57 times more return on investment than Teraplast Bist. However, Erste Group is 1.57 times more volatile than Teraplast Bist. It trades about 0.1 of its potential returns per unit of risk. Teraplast Bist is currently generating about -0.19 per unit of risk. If you would invest  29,440  in Erste Group Bank on December 30, 2024 and sell it today you would earn a total of  3,420  from holding Erste Group Bank or generate 11.62% 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.  Teraplast Bist

Erste Group Bank

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Erste Group displayed solid returns over the last few months and may actually be approaching a breakup point.

Teraplast Bist

Risk-Adjusted Performance

Very Weak

Over the last 90 days Teraplast Bist has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Erste Group and Teraplast Bist

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

The idea behind Erste Group Bank and Teraplast Bist 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.