Correlation Between Erste Group and Sydbank

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

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

Diversification Opportunities for Erste Group and Sydbank

0.66

Correlation Coefficient

Erste Group  Sydbank

Poor diversification

The 3 months correlation between Erste and Sydbank is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and Sydbank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sydbank and Erste Group 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 Erste Group Bank are associated (or correlated) with Sydbank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sydbank has no effect on the direction of Erste Group i.e., Erste Group and Sydbank go up and down completely randomly.

Pair Corralation between Erste Group and Sydbank

Assuming the 90 days trading horizon Erste Group is expected to generate 4.63 times less return on investment than Sydbank. But when comparing it to its historical volatility, Erste Group Bank is 1.04 times less risky than Sydbank. It trades about 0.08 of its potential returns per unit of risk. Sydbank is currently generating about 0.36 of returns per unit of risk over similar time horizon. If you would invest  31,600  in Sydbank on August 30, 2024 and sell it today you would earn a total of  3,700  from holding Sydbank or generate 11.71% return on investment over 90 days.

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

Erste Group Bank  vs.  Sydbank

Erste Group Bank

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Erste Group is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Sydbank

Risk-Adjusted Performance

3 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Sydbank are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Sydbank is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Erste Group and Sydbank

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

The idea behind Erste Group Bank and Sydbank 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.