Correlation Between German American and Hermes International

Can any of the company-specific risk be diversified away by investing in both German American and Hermes International 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 German American and Hermes International into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between German American Bancorp and Hermes International SCA, you can compare the effects of market volatilities on German American and Hermes International 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 German American with a short position of Hermes International. Check out your portfolio center. Please also check ongoing floating volatility patterns of German American and Hermes International.

Diversification Opportunities for German American and Hermes International

0.23

Correlation Coefficient

German American  Hermes International

Modest diversification

The 3 months correlation between German and Hermes is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding German American Bancorp and Hermes International SCA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hermes International SCA and German American 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 German American Bancorp are associated (or correlated) with Hermes International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hermes International SCA has no effect on the direction of German American i.e., German American and Hermes International go up and down completely randomly.

Pair Corralation between German American and Hermes International

Given the investment horizon of 90 days German American Bancorp is expected to under-perform the Hermes International. But the stock apears to be less risky and, when comparing its historical volatility, German American Bancorp is 1.46 times less risky than Hermes International. The stock trades about -0.07 of its potential returns per unit of risk. The Hermes International SCA is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  237,923  in Hermes International SCA on December 29, 2024 and sell it today you would earn a total of  28,077  from holding Hermes International SCA or generate 11.8% return on investment over 90 days.

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

German American Bancorp  vs.  Hermes International SCA

German American Bancorp

Risk-Adjusted Performance

Very Weak

Over the last 90 days German American Bancorp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, German American is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Hermes International SCA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Hermes International SCA are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Hermes International reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with German American and Hermes International

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

The idea behind German American Bancorp and Hermes International SCA 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.