Correlation Between Tokyo Electric and Verbund AG

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

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

Diversification Opportunities for Tokyo Electric and Verbund AG

0.14

Correlation Coefficient

Tokyo Electric  Verbund AG

Average diversification

The 3 months correlation between Tokyo and Verbund is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Tokyo Electric Power 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 Tokyo Electric 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 Tokyo Electric Power 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 Tokyo Electric i.e., Tokyo Electric and Verbund AG go up and down completely randomly.

Pair Corralation between Tokyo Electric and Verbund AG

Assuming the 90 days horizon Tokyo Electric Power is expected to under-perform the Verbund AG. In addition to that, Tokyo Electric is 2.61 times more volatile than Verbund AG ADR. It trades about -0.02 of its total potential returns per unit of risk. Verbund AG ADR is currently generating about 0.05 per unit of volatility. If you would invest  1,445  in Verbund AG ADR on December 2, 2024 and sell it today you would earn a total of  65.00  from holding Verbund AG ADR or generate 4.5% return on investment over 90 days.

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

Tokyo Electric Power  vs.  Verbund AG ADR

Tokyo Electric Power

Risk-Adjusted Performance

Very Weak

Over the last 90 days Tokyo Electric Power has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Verbund AG ADR

Risk-Adjusted Performance

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 Tokyo Electric and Verbund AG

The main advantage of trading using opposite Tokyo Electric and Verbund AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tokyo Electric 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 Tokyo Electric Power 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.

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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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.