Correlation Between KBC Group and Erste Group

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

By analyzing existing cross correlation between KBC Group NV and Erste Group Bank, you can compare the effects of market volatilities on KBC Group and Erste Group 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 KBC Group with a short position of Erste Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of KBC Group and Erste Group.

Diversification Opportunities for KBC Group and Erste Group

-0.25

Correlation Coefficient

KBC Group  Erste Group

Very good diversification

The 3 months correlation between KBC and Erste is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding KBC Group NV and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank and KBC 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 KBC Group NV are associated (or correlated) with Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of KBC Group i.e., KBC Group and Erste Group go up and down completely randomly.

Pair Corralation between KBC Group and Erste Group

Assuming the 90 days horizon KBC Group is expected to generate 6.35 times less return on investment than Erste Group. But when comparing it to its historical volatility, KBC Group NV is 1.1 times less risky than Erste Group. It trades about 0.05 of its potential returns per unit of risk. Erste Group Bank is currently generating about 0.27 of returns per unit of risk over similar time horizon. If you would invest  5,467  in Erste Group Bank on September 27, 2024 and sell it today you would earn a total of  628.00  from holding Erste Group Bank or generate 11.49% return on investment over 90 days.

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

KBC Group NV  vs.  Erste Group Bank

KBC Group NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KBC Group NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, KBC Group is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Erste Group Bank

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Erste Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KBC Group and Erste Group

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

The idea behind KBC Group NV and Erste Group Bank 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..