Correlation Between Vestas Wind and GEA GROUP

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

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

Diversification Opportunities for Vestas Wind and GEA GROUP

0.04

Correlation Coefficient

Vestas Wind  GEA GROUP

Significant diversification

The 3 months correlation between Vestas and GEA is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding Vestas Wind Systems and GEA GROUP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GEA GROUP and Vestas Wind 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 Vestas Wind Systems are associated (or correlated) with GEA GROUP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GEA GROUP has no effect on the direction of Vestas Wind i.e., Vestas Wind and GEA GROUP go up and down completely randomly.

Pair Corralation between Vestas Wind and GEA GROUP

Assuming the 90 days trading horizon Vestas Wind Systems is expected to under-perform the GEA GROUP. In addition to that, Vestas Wind is 2.77 times more volatile than GEA GROUP. It trades about -0.03 of its total potential returns per unit of risk. GEA GROUP is currently generating about 0.23 per unit of volatility. If you would invest  4,734  in GEA GROUP on December 2, 2024 and sell it today you would earn a total of  791.00  from holding GEA GROUP or generate 16.71% return on investment over 90 days.

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

Vestas Wind Systems  vs.  GEA GROUP

Vestas Wind Systems

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vestas Wind Systems has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Vestas Wind is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

GEA GROUP

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in GEA GROUP are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, GEA GROUP reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vestas Wind and GEA GROUP

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

The idea behind Vestas Wind Systems and GEA GROUP 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.