Correlation Between Bayerische Motoren and Volkswagen

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

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

Diversification Opportunities for Bayerische Motoren and Volkswagen

0.92

Correlation Coefficient

Bayerische Motoren  Volkswagen

Almost no diversification

The 3 months correlation between Bayerische and Volkswagen is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Bayerische Motoren Werke and Volkswagen AG VZO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG VZO and Bayerische Motoren 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 Bayerische Motoren Werke 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 VZO has no effect on the direction of Bayerische Motoren i.e., Bayerische Motoren and Volkswagen go up and down completely randomly.

Pair Corralation between Bayerische Motoren and Volkswagen

Assuming the 90 days horizon Bayerische Motoren Werke is expected to under-perform the Volkswagen. But the pink sheet apears to be less risky and, when comparing its historical volatility, Bayerische Motoren Werke is 32.04 times less risky than Volkswagen. The pink sheet trades about -0.21 of its potential returns per unit of risk. The Volkswagen AG VZO is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  8,984  in Volkswagen AG VZO on September 13, 2024 and sell it today you would earn a total of  43.00  from holding Volkswagen AG VZO or generate 0.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	95.45%
Values	Daily Returns

Bayerische Motoren Werke  vs.  Volkswagen AG VZO

Bayerische Motoren Werke

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Bayerische Motoren Werke has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Volkswagen is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Bayerische Motoren and Volkswagen

The main advantage of trading using opposite Bayerische Motoren and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bayerische Motoren 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 Bayerische Motoren Werke and Volkswagen AG VZO 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.