Correlation Between Voestalpine and VERBUND AG

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

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

Diversification Opportunities for Voestalpine and VERBUND AG

0.09

Correlation Coefficient

Voestalpine  VERBUND AG

Significant diversification

The 3 months correlation between Voestalpine and VERBUND is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Voestalpine AG and VERBUND AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VERBUND AG and Voestalpine 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 Voestalpine AG 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 has no effect on the direction of Voestalpine i.e., Voestalpine and VERBUND AG go up and down completely randomly.

Pair Corralation between Voestalpine and VERBUND AG

Assuming the 90 days trading horizon Voestalpine AG is expected to generate 1.3 times more return on investment than VERBUND AG. However, Voestalpine is 1.3 times more volatile than VERBUND AG. It trades about 0.14 of its potential returns per unit of risk. VERBUND AG is currently generating about -0.06 per unit of risk. If you would invest  1,821  in Voestalpine AG on November 28, 2024 and sell it today you would earn a total of  277.00  from holding Voestalpine AG or generate 15.21% return on investment over 90 days.

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

Voestalpine AG  vs.  VERBUND AG

Voestalpine AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Voestalpine AG are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical and fundamental indicators, Voestalpine demonstrated solid returns over the last few months and may actually be approaching a breakup point.

VERBUND AG

Risk-Adjusted Performance

Very Weak

Over the last 90 days VERBUND AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, VERBUND AG is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Voestalpine and VERBUND AG

The main advantage of trading using opposite Voestalpine and VERBUND AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Voestalpine 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 Voestalpine AG and VERBUND 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.