Correlation Between First National and Verbund AG

Can any of the company-specific risk be diversified away by investing in both First National and Verbund AG 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 First National and Verbund AG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between First National Energy and Verbund AG ADR, you can compare the effects of market volatilities on First National and Verbund AG 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 First National with a short position of Verbund AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of First National and Verbund AG.

Diversification Opportunities for First National and Verbund AG

0.59

Correlation Coefficient

First National  Verbund AG

Very weak diversification

The 3 months correlation between First and Verbund is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding First National Energy and Verbund AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Verbund AG ADR and First National 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 First National Energy are associated (or correlated) with Verbund AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Verbund AG ADR has no effect on the direction of First National i.e., First National and Verbund AG go up and down completely randomly.

Pair Corralation between First National and Verbund AG

Given the investment horizon of 90 days First National Energy is expected to generate 5.12 times more return on investment than Verbund AG. However, First National is 5.12 times more volatile than Verbund AG ADR. It trades about 0.0 of its potential returns per unit of risk. Verbund AG ADR is currently generating about -0.01 per unit of risk. If you would invest  64.00  in First National Energy on September 5, 2024 and sell it today you would lose (54.94) from holding First National Energy or give up 85.84% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.44%
Values	Daily Returns

First National Energy  vs.  Verbund AG ADR

First National Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First National Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, First National is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Verbund AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Verbund AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Verbund AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with First National and Verbund AG

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

The idea behind First National Energy and Verbund AG ADR 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.