Correlation Between Stellantis and Volkswagen

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

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

Diversification Opportunities for Stellantis and Volkswagen

0.46

Correlation Coefficient

Stellantis  Volkswagen

Very weak diversification

The 3 months correlation between Stellantis and Volkswagen is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Stellantis NV 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 Stellantis 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 Stellantis NV 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 Stellantis i.e., Stellantis and Volkswagen go up and down completely randomly.

Pair Corralation between Stellantis and Volkswagen

Given the investment horizon of 90 days Stellantis NV is expected to generate 1.02 times more return on investment than Volkswagen. However, Stellantis is 1.02 times more volatile than Volkswagen AG VZO. It trades about -0.03 of its potential returns per unit of risk. Volkswagen AG VZO is currently generating about -0.07 per unit of risk. If you would invest  1,500  in Stellantis NV on September 12, 2024 and sell it today you would lose (111.00) from holding Stellantis NV or give up 7.4% of portfolio value over 90 days.

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

Stellantis NV  vs.  Volkswagen AG VZO

Stellantis NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stellantis NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Stellantis is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 latest weak performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Stellantis and Volkswagen

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