Correlation Between Commerzbank and UniCredit SpA
Can any of the company-specific risk be diversified away by investing in both Commerzbank and UniCredit SpA 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 UniCredit SpA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Commerzbank AG PK and UniCredit SpA ADR, you can compare the effects of market volatilities on Commerzbank and UniCredit SpA 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 UniCredit SpA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Commerzbank and UniCredit SpA.
Diversification Opportunities for Commerzbank and UniCredit SpA
0.73 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Commerzbank and UniCredit is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Commerzbank AG PK and UniCredit SpA ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UniCredit SpA ADR 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 PK are associated (or correlated) with UniCredit SpA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UniCredit SpA ADR has no effect on the direction of Commerzbank i.e., Commerzbank and UniCredit SpA go up and down completely randomly.
Pair Corralation between Commerzbank and UniCredit SpA
Assuming the 90 days horizon Commerzbank AG PK is expected to under-perform the UniCredit SpA. But the pink sheet apears to be less risky and, when comparing its historical volatility, Commerzbank AG PK is 1.16 times less risky than UniCredit SpA. The pink sheet trades about -0.2 of its potential returns per unit of risk. The UniCredit SpA ADR is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest 2,159 in UniCredit SpA ADR on August 24, 2024 and sell it today you would lose (37.00) from holding UniCredit SpA ADR or give up 1.71% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Commerzbank AG PK vs. UniCredit SpA ADR
Performance |
| Timeline |
| Commerzbank AG PK |
| UniCredit SpA ADR |
Commerzbank and UniCredit SpA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Commerzbank and UniCredit SpA
The main advantage of trading using opposite Commerzbank and UniCredit SpA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Commerzbank position performs unexpectedly, UniCredit SpA 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 UniCredit SpA will offset losses from the drop in UniCredit SpA's long position.The idea behind Commerzbank AG PK and UniCredit SpA 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.Check out your portfolio center.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 Anywhere module to track or share privately all of your investments from the convenience of any device.
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