Correlation Between Banco Do and Erste Group

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

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

Diversification Opportunities for Banco Do and Erste Group

-0.55

Correlation Coefficient

Banco Do  Erste Group

Excellent diversification

The 3 months correlation between Banco and Erste is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding Banco do Brasil and Erste Group Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Erste Group Bank and Banco Do 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 Banco do Brasil are associated (or correlated) with Erste Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Erste Group Bank has no effect on the direction of Banco Do i.e., Banco Do and Erste Group go up and down completely randomly.

Pair Corralation between Banco Do and Erste Group

Assuming the 90 days trading horizon Banco do Brasil is expected to under-perform the Erste Group. But the stock apears to be less risky and, when comparing its historical volatility, Banco do Brasil is 1.41 times less risky than Erste Group. The stock trades about -0.17 of its potential returns per unit of risk. The Erste Group Bank is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,640  in Erste Group Bank on September 17, 2024 and sell it today you would earn a total of  447.00  from holding Erste Group Bank or generate 16.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.44%
Values	Daily Returns

Banco do Brasil  vs.  Erste Group Bank

Banco do Brasil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Banco do Brasil has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Erste Group Bank

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak fundamental indicators, Erste Group showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Banco Do and Erste Group

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

The idea behind Banco do Brasil and Erste Group Bank 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.

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.