Correlation Between Swedbank and Erste Group

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

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

Diversification Opportunities for Swedbank and Erste Group

-0.19

Correlation Coefficient

Swedbank  Erste Group

Good diversification

The 3 months correlation between Swedbank and Erste is -0.19. Overlapping area represents the amount of risk that can be diversified away by holding Swedbank AB 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 Swedbank 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 Swedbank AB 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 Swedbank i.e., Swedbank and Erste Group go up and down completely randomly.

Pair Corralation between Swedbank and Erste Group

Assuming the 90 days horizon Swedbank is expected to generate 2.38 times less return on investment than Erste Group. In addition to that, Swedbank is 1.03 times more volatile than Erste Group Bank. It trades about 0.04 of its total potential returns per unit of risk. Erste Group Bank is currently generating about 0.1 per unit of volatility. If you would invest  1,432  in Erste Group Bank on September 21, 2024 and sell it today you would earn a total of  1,623  from holding Erste Group Bank or generate 113.34% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	99.8%
Values	Daily Returns

Swedbank AB  vs.  Erste Group Bank

Swedbank AB

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Swedbank AB has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Erste Group Bank

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Erste Group Bank are ranked lower than 11 (%) 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 Swedbank and Erste Group

The main advantage of trading using opposite Swedbank and Erste Group positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Swedbank 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 Swedbank AB 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.