Correlation Between Gamma Communications and Volkswagen

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

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

Diversification Opportunities for Gamma Communications and Volkswagen

0.69

Correlation Coefficient

Gamma Communications  Volkswagen

Poor diversification

The 3 months correlation between Gamma and Volkswagen is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Gamma Communications PLC and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and Gamma Communications 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 Gamma Communications PLC 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 has no effect on the direction of Gamma Communications i.e., Gamma Communications and Volkswagen go up and down completely randomly.

Pair Corralation between Gamma Communications and Volkswagen

Assuming the 90 days trading horizon Gamma Communications PLC is expected to generate 0.75 times more return on investment than Volkswagen. However, Gamma Communications PLC is 1.34 times less risky than Volkswagen. It trades about 0.04 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.1 per unit of risk. If you would invest  161,800  in Gamma Communications PLC on September 13, 2024 and sell it today you would earn a total of  2,600  from holding Gamma Communications PLC or generate 1.61% return on investment over 90 days.

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

Gamma Communications PLC  vs.  Volkswagen AG

Gamma Communications PLC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Gamma Communications PLC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Gamma Communications is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Gamma Communications and Volkswagen

The main advantage of trading using opposite Gamma Communications and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Gamma Communications 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 Gamma Communications PLC and Volkswagen AG 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.