Correlation Between TOHOKU EL and VERBUND AG

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

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

Diversification Opportunities for TOHOKU EL and VERBUND AG

0.13

Correlation Coefficient

TOHOKU EL  VERBUND AG

Average diversification

The 3 months correlation between TOHOKU and VERBUND is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding TOHOKU EL PWR 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 TOHOKU EL 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 TOHOKU EL PWR 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 TOHOKU EL i.e., TOHOKU EL and VERBUND AG go up and down completely randomly.

Pair Corralation between TOHOKU EL and VERBUND AG

Assuming the 90 days horizon TOHOKU EL PWR is expected to under-perform the VERBUND AG. But the stock apears to be less risky and, when comparing its historical volatility, TOHOKU EL PWR is 1.12 times less risky than VERBUND AG. The stock trades about -0.08 of its potential returns per unit of risk. The VERBUND AG ADR is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  1,400  in VERBUND AG ADR on December 29, 2024 and sell it today you would lose (120.00) from holding VERBUND AG ADR or give up 8.57% of portfolio value over 90 days.

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

TOHOKU EL PWR  vs.  VERBUND AG ADR

TOHOKU EL PWR

Risk-Adjusted Performance

Very Weak

Over the last 90 days TOHOKU EL PWR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with TOHOKU EL and VERBUND AG

The main advantage of trading using opposite TOHOKU EL and VERBUND AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TOHOKU EL 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 TOHOKU EL PWR 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.