Correlation Between Mercedes Benz and CSL

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

By analyzing existing cross correlation between Mercedes Benz Group AG and CSL Limited, you can compare the effects of market volatilities on Mercedes Benz and CSL 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 Mercedes Benz with a short position of CSL. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercedes Benz and CSL.

Diversification Opportunities for Mercedes Benz and CSL

0.67

Correlation Coefficient

Mercedes Benz  CSL

Poor diversification

The 3 months correlation between Mercedes and CSL is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Mercedes Benz Group AG and CSL Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CSL Limited and Mercedes Benz 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 Mercedes Benz Group AG are associated (or correlated) with CSL. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CSL Limited has no effect on the direction of Mercedes Benz i.e., Mercedes Benz and CSL go up and down completely randomly.

Pair Corralation between Mercedes Benz and CSL

Assuming the 90 days horizon Mercedes Benz Group AG is expected to generate 1.25 times more return on investment than CSL. However, Mercedes Benz is 1.25 times more volatile than CSL Limited. It trades about -0.04 of its potential returns per unit of risk. CSL Limited is currently generating about -0.07 per unit of risk. If you would invest  5,620  in Mercedes Benz Group AG on September 23, 2024 and sell it today you would lose (279.00) from holding Mercedes Benz Group AG or give up 4.96% of portfolio value over 90 days.

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

Mercedes Benz Group AG  vs.  CSL Limited

Mercedes Benz Group

Risk-Adjusted Performance

0 of 100

Very Weak

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

CSL Limited

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Mercedes Benz and CSL

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

The idea behind Mercedes Benz Group AG and CSL Limited 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.