Correlation Between Erste Group and Nokia Oyj

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

Diversification Opportunities for Erste Group and Nokia Oyj

0.46

Correlation Coefficient

Erste Group  Nokia Oyj

Very weak diversification

The 3 months correlation between Erste and Nokia is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and Nokia Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nokia Oyj 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 Nokia Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nokia Oyj has no effect on the direction of Erste Group i.e., Erste Group and Nokia Oyj go up and down completely randomly.

Pair Corralation between Erste Group and Nokia Oyj

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 0.64 times more return on investment than Nokia Oyj. However, Erste Group Bank is 1.57 times less risky than Nokia Oyj. It trades about 0.29 of its potential returns per unit of risk. Nokia Oyj is currently generating about 0.12 per unit of risk. If you would invest  119,750  in Erste Group Bank on September 15, 2024 and sell it today you would earn a total of  26,500  from holding Erste Group Bank or generate 22.13% return on investment over 90 days.

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

Erste Group Bank  vs.  Nokia Oyj

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. Even with relatively weak basic indicators, Erste Group reported solid returns over the last few months and may actually be approaching a breakup point.

Nokia Oyj

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nokia Oyj are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Nokia Oyj reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Erste Group and Nokia Oyj

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

The idea behind Erste Group Bank and Nokia Oyj 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 Global Correlations module to find global opportunities by holding instruments from different markets.