Correlation Between Toma As and Volkswagen

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

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

Diversification Opportunities for Toma As and Volkswagen

-0.2

Correlation Coefficient

Toma As  Volkswagen

Good diversification

The 3 months correlation between Toma and Volkswagen is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Toma as and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and Toma As 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 Toma as 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 Toma As i.e., Toma As and Volkswagen go up and down completely randomly.

Pair Corralation between Toma As and Volkswagen

Assuming the 90 days trading horizon Toma as is expected to generate 0.55 times more return on investment than Volkswagen. However, Toma as is 1.81 times less risky than Volkswagen. It trades about 0.07 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.13 per unit of risk. If you would invest  132,000  in Toma as on August 30, 2024 and sell it today you would earn a total of  6,000  from holding Toma as or generate 4.55% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Toma as  vs.  Volkswagen AG

Toma as

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Toma as are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Toma As is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail 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. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Toma As and Volkswagen

The main advantage of trading using opposite Toma As and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Toma As 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 Toma as 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.