Correlation Between Erste Group and Palfinger

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

Diversification Opportunities for Erste Group and Palfinger

-0.77

Correlation Coefficient

Erste Group  Palfinger

Pay attention - limited upside

The 3 months correlation between Erste and Palfinger is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding Erste Group Bank and Palfinger AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Palfinger AG 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 Palfinger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Palfinger AG has no effect on the direction of Erste Group i.e., Erste Group and Palfinger go up and down completely randomly.

Pair Corralation between Erste Group and Palfinger

Assuming the 90 days trading horizon Erste Group Bank is expected to generate 0.92 times more return on investment than Palfinger. However, Erste Group Bank is 1.08 times less risky than Palfinger. It trades about 0.1 of its potential returns per unit of risk. Palfinger AG is currently generating about -0.02 per unit of risk. If you would invest  2,993  in Erste Group Bank on September 17, 2024 and sell it today you would earn a total of  2,915  from holding Erste Group Bank or generate 97.39% return on investment over 90 days.

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

Erste Group Bank  vs.  Palfinger AG

Erste Group Bank

Risk-Adjusted Performance

21 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent basic indicators, Erste Group demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Palfinger AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Palfinger AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest inconsistent performance, the Stock's essential indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Erste Group and Palfinger

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

The idea behind Erste Group Bank and Palfinger AG 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.