Correlation Between Commerzbank and Budapest

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

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

Diversification Opportunities for Commerzbank and Budapest

0.44

Correlation Coefficient

Commerzbank  Budapest

Very weak diversification

The 3 months correlation between Commerzbank and Budapest is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Commerzbank AG and Budapest SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Budapest SE and Commerzbank 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 Commerzbank AG are associated (or correlated) with Budapest. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Budapest SE has no effect on the direction of Commerzbank i.e., Commerzbank and Budapest go up and down completely randomly.

Pair Corralation between Commerzbank and Budapest

Assuming the 90 days trading horizon Commerzbank AG is expected to generate 5.73 times more return on investment than Budapest. However, Commerzbank is 5.73 times more volatile than Budapest SE. It trades about 0.14 of its potential returns per unit of risk. Budapest SE is currently generating about 0.15 per unit of risk. If you would invest  503,200  in Commerzbank AG on September 1, 2024 and sell it today you would earn a total of  96,600  from holding Commerzbank AG or generate 19.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	53.97%
Values	Daily Returns

Commerzbank AG  vs.  Budapest SE

Pair Trading with Commerzbank and Budapest

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

The idea behind Commerzbank AG and Budapest SE 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.