Correlation Between American Public and Volkswagen

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

By analyzing existing cross correlation between American Public Education and Volkswagen AG 110, you can compare the effects of market volatilities on American Public and Volkswagen 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 American Public with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of American Public and Volkswagen.

Diversification Opportunities for American Public and Volkswagen

-0.84

Correlation Coefficient

American Public  Volkswagen

Pay attention - limited upside

The 3 months correlation between American and Volkswagen is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding American Public Education and Volkswagen AG 110 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 110 and American Public 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 American Public Education are associated (or correlated) with Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG 110 has no effect on the direction of American Public i.e., American Public and Volkswagen go up and down completely randomly.

Pair Corralation between American Public and Volkswagen

Given the investment horizon of 90 days American Public Education is expected to generate 1.79 times more return on investment than Volkswagen. However, American Public is 1.79 times more volatile than Volkswagen AG 110. It trades about 0.2 of its potential returns per unit of risk. Volkswagen AG 110 is currently generating about -0.18 per unit of risk. If you would invest  1,458  in American Public Education on September 26, 2024 and sell it today you would earn a total of  628.00  from holding American Public Education or generate 43.07% return on investment over 90 days.

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

American Public Education  vs.  Volkswagen AG 110

American Public Education

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Public Education are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical and fundamental indicators, American Public demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG 110

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG 110 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with American Public and Volkswagen

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

The idea behind American Public Education and Volkswagen AG 110 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.