Correlation Between Erste Group and CNH Industrial

Can any of the company-specific risk be diversified away by investing in both Erste Group and CNH Industrial 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 CNH Industrial 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 CNH Industrial NV, you can compare the effects of market volatilities on Erste Group and CNH Industrial 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 CNH Industrial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Erste Group and CNH Industrial.

Diversification Opportunities for Erste Group and CNH Industrial

0.28

Correlation Coefficient

Erste Group  CNH Industrial

Modest diversification

The 3 months correlation between Erste and CNH is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and CNH Industrial NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CNH Industrial NV 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 CNH Industrial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CNH Industrial NV has no effect on the direction of Erste Group i.e., Erste Group and CNH Industrial go up and down completely randomly.

Pair Corralation between Erste Group and CNH Industrial

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 0.31 times more return on investment than CNH Industrial. However, Erste Group Bank is 3.24 times less risky than CNH Industrial. It trades about 0.26 of its potential returns per unit of risk. CNH Industrial NV is currently generating about 0.02 per unit of risk. If you would invest  4,904  in Erste Group Bank on September 28, 2024 and sell it today you would earn a total of  980.00  from holding Erste Group Bank or generate 19.98% return on investment over 90 days.

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

Erste Group Bank  vs.  CNH Industrial NV

Erste Group Bank

Risk-Adjusted Performance

20 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

CNH Industrial NV

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in CNH Industrial NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, CNH Industrial 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 CNH Industrial

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

The idea behind Erste Group Bank and CNH Industrial NV 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..