Correlation Between Encavis AG and VERBUND AG

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

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

Diversification Opportunities for Encavis AG and VERBUND AG

0.28

Correlation Coefficient

Encavis AG  VERBUND AG

Modest diversification

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

Pair Corralation between Encavis AG and VERBUND AG

Assuming the 90 days horizon Encavis AG is expected to generate 0.25 times more return on investment than VERBUND AG. However, Encavis AG is 4.01 times less risky than VERBUND AG. It trades about 0.2 of its potential returns per unit of risk. VERBUND AG ADR is currently generating about 0.04 per unit of risk. If you would invest  1,707  in Encavis AG on September 12, 2024 and sell it today you would earn a total of  33.00  from holding Encavis AG or generate 1.93% return on investment over 90 days.

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

Encavis AG  vs.  VERBUND AG ADR

Encavis AG

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Encavis AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Encavis AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

VERBUND AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VERBUND AG ADR has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, VERBUND AG is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Encavis AG and VERBUND AG

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

The idea behind Encavis AG and VERBUND AG ADR 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.