Correlation Between UniCredit SpA and CEZ As

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

By analyzing existing cross correlation between UniCredit SpA and CEZ as, you can compare the effects of market volatilities on UniCredit SpA and CEZ As 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 UniCredit SpA with a short position of CEZ As. Check out your portfolio center. Please also check ongoing floating volatility patterns of UniCredit SpA and CEZ As.

Diversification Opportunities for UniCredit SpA and CEZ As

0.3

Correlation Coefficient

UniCredit SpA  CEZ As

Weak diversification

The 3 months correlation between UniCredit and CEZ is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding UniCredit SpA and CEZ as in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CEZ as and UniCredit SpA 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 UniCredit SpA are associated (or correlated) with CEZ As. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CEZ as has no effect on the direction of UniCredit SpA i.e., UniCredit SpA and CEZ As go up and down completely randomly.

Pair Corralation between UniCredit SpA and CEZ As

Assuming the 90 days trading horizon UniCredit SpA is expected to generate 1.0 times more return on investment than CEZ As. However, UniCredit SpA is 1.0 times more volatile than CEZ as. It trades about 0.3 of its potential returns per unit of risk. CEZ as is currently generating about 0.12 per unit of risk. If you would invest  16,120  in UniCredit SpA on December 31, 2024 and sell it today you would earn a total of  6,525  from holding UniCredit SpA or generate 40.48% return on investment over 90 days.

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

UniCredit SpA  vs.  CEZ as

UniCredit SpA

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in UniCredit SpA are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, UniCredit SpA reported solid returns over the last few months and may actually be approaching a breakup point.

CEZ as

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in CEZ as are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, CEZ As reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with UniCredit SpA and CEZ As

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

The idea behind UniCredit SpA and CEZ as 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.