Correlation Between Fuchs Petrolub and Covestro ADR

Can any of the company-specific risk be diversified away by investing in both Fuchs Petrolub and Covestro ADR 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 Fuchs Petrolub and Covestro ADR into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Fuchs Petrolub SE and Covestro ADR, you can compare the effects of market volatilities on Fuchs Petrolub and Covestro ADR 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 Fuchs Petrolub with a short position of Covestro ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of Fuchs Petrolub and Covestro ADR.

Diversification Opportunities for Fuchs Petrolub and Covestro ADR

0.79

Correlation Coefficient

Fuchs Petrolub  Covestro ADR

Poor diversification

The 3 months correlation between Fuchs and Covestro is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Fuchs Petrolub SE and Covestro ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Covestro ADR and Fuchs Petrolub 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 Fuchs Petrolub SE are associated (or correlated) with Covestro ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Covestro ADR has no effect on the direction of Fuchs Petrolub i.e., Fuchs Petrolub and Covestro ADR go up and down completely randomly.

Pair Corralation between Fuchs Petrolub and Covestro ADR

Assuming the 90 days horizon Fuchs Petrolub SE is expected to generate 2.0 times more return on investment than Covestro ADR. However, Fuchs Petrolub is 2.0 times more volatile than Covestro ADR. It trades about 0.09 of its potential returns per unit of risk. Covestro ADR is currently generating about -0.01 per unit of risk. If you would invest  1,121  in Fuchs Petrolub SE on November 30, 2024 and sell it today you would earn a total of  97.00  from holding Fuchs Petrolub SE or generate 8.65% return on investment over 90 days.

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

Fuchs Petrolub SE  vs.  Covestro ADR

Fuchs Petrolub SE

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Fuchs Petrolub SE are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental drivers, Fuchs Petrolub may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Covestro ADR

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Fuchs Petrolub and Covestro ADR

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

The idea behind Fuchs Petrolub SE and Covestro 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..