Correlation Between UniCredit SpA and Commerzbank

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

By analyzing existing cross correlation between UniCredit SpA ADR and Commerzbank AG, you can compare the effects of market volatilities on UniCredit SpA and Commerzbank 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 Commerzbank. Check out your portfolio center. Please also check ongoing floating volatility patterns of UniCredit SpA and Commerzbank.

Diversification Opportunities for UniCredit SpA and Commerzbank

0.51

Correlation Coefficient

UniCredit SpA  Commerzbank

Very weak diversification

The 3 months correlation between UniCredit and Commerzbank is 0.51. Overlapping area represents the amount of risk that can be diversified away by holding UniCredit SpA ADR and Commerzbank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Commerzbank AG 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 ADR are associated (or correlated) with Commerzbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Commerzbank AG has no effect on the direction of UniCredit SpA i.e., UniCredit SpA and Commerzbank go up and down completely randomly.

Pair Corralation between UniCredit SpA and Commerzbank

Assuming the 90 days horizon UniCredit SpA ADR is expected to under-perform the Commerzbank. But the pink sheet apears to be less risky and, when comparing its historical volatility, UniCredit SpA ADR is 1.8 times less risky than Commerzbank. The pink sheet trades about -0.01 of its potential returns per unit of risk. The Commerzbank AG is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,405  in Commerzbank AG on September 3, 2024 and sell it today you would earn a total of  100.00  from holding Commerzbank AG or generate 7.12% return on investment over 90 days.

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

UniCredit SpA ADR  vs.  Commerzbank AG

UniCredit SpA ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days UniCredit SpA ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, UniCredit SpA is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Commerzbank AG

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Commerzbank AG are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak fundamental drivers, Commerzbank may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with UniCredit SpA and Commerzbank

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

The idea behind UniCredit SpA ADR and Commerzbank AG 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.