Correlation Between International Consolidated and Erste Group

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

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

Diversification Opportunities for International Consolidated and Erste Group

0.88

Correlation Coefficient

International Consolidated  Erste Group

Very poor diversification

The 3 months correlation between International and Erste is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding International Consolidated Air 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 International Consolidated 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 International Consolidated Airlines 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 International Consolidated i.e., International Consolidated and Erste Group go up and down completely randomly.

Pair Corralation between International Consolidated and Erste Group

Assuming the 90 days trading horizon International Consolidated Airlines is expected to generate 1.59 times more return on investment than Erste Group. However, International Consolidated is 1.59 times more volatile than Erste Group Bank. It trades about 0.33 of its potential returns per unit of risk. Erste Group Bank is currently generating about 0.29 per unit of risk. If you would invest  19,960  in International Consolidated Airlines on September 16, 2024 and sell it today you would earn a total of  9,360  from holding International Consolidated Airlines or generate 46.89% return on investment over 90 days.

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

International Consolidated Air  vs.  Erste Group Bank

International Consolidated

Risk-Adjusted Performance

26 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in International Consolidated Airlines are ranked lower than 26 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, International Consolidated exhibited solid returns over the last few months and may actually be approaching a breakup point.

Erste Group Bank

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Erste Group unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with International Consolidated and Erste Group

The main advantage of trading using opposite International Consolidated and Erste Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if International Consolidated 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 International Consolidated Airlines 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.

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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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.