Correlation Between EuropaCorp and SoftBank Group

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

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

Diversification Opportunities for EuropaCorp and SoftBank Group

-0.61

Correlation Coefficient

EuropaCorp  SoftBank Group

Excellent diversification

The 3 months correlation between EuropaCorp and SoftBank is -0.61. Overlapping area represents the amount of risk that can be diversified away by holding EuropaCorp and SoftBank Group Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SoftBank Group Corp and EuropaCorp 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 EuropaCorp are associated (or correlated) with SoftBank Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SoftBank Group Corp has no effect on the direction of EuropaCorp i.e., EuropaCorp and SoftBank Group go up and down completely randomly.

Pair Corralation between EuropaCorp and SoftBank Group

Assuming the 90 days horizon EuropaCorp is expected to under-perform the SoftBank Group. But the stock apears to be less risky and, when comparing its historical volatility, EuropaCorp is 2.75 times less risky than SoftBank Group. The stock trades about -0.18 of its potential returns per unit of risk. The SoftBank Group Corp is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  3,251  in SoftBank Group Corp on September 25, 2024 and sell it today you would earn a total of  2,198  from holding SoftBank Group Corp or generate 67.61% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

EuropaCorp  vs.  SoftBank Group Corp

EuropaCorp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days EuropaCorp has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

SoftBank Group Corp

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SoftBank Group Corp are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, SoftBank Group reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with EuropaCorp and SoftBank Group

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

The idea behind EuropaCorp and SoftBank Group Corp 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.