Correlation Between Volkswagen and Porvair Plc

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

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

Diversification Opportunities for Volkswagen and Porvair Plc

0.25

Correlation Coefficient

Volkswagen  Porvair Plc

Modest diversification

The 3 months correlation between Volkswagen and Porvair is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Porvair plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porvair plc and Volkswagen 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 Volkswagen AG are associated (or correlated) with Porvair Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porvair plc has no effect on the direction of Volkswagen i.e., Volkswagen and Porvair Plc go up and down completely randomly.

Pair Corralation between Volkswagen and Porvair Plc

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Porvair Plc. In addition to that, Volkswagen is 1.02 times more volatile than Porvair plc. It trades about -0.08 of its total potential returns per unit of risk. Porvair plc is currently generating about 0.06 per unit of volatility. If you would invest  64,000  in Porvair plc on September 13, 2024 and sell it today you would earn a total of  3,600  from holding Porvair plc or generate 5.63% return on investment over 90 days.

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

Volkswagen AG  vs.  Porvair plc

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Porvair plc

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Porvair plc are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical and fundamental indicators, Porvair Plc may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Volkswagen and Porvair Plc

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

The idea behind Volkswagen AG and Porvair plc 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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.