Correlation Between Volkswagen and Security Federal

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

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

Diversification Opportunities for Volkswagen and Security Federal

-0.64

Correlation Coefficient

Volkswagen  Security Federal

Excellent diversification

The 3 months correlation between Volkswagen and Security is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Security Federal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Security Federal and Volkswagen 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 Volkswagen AG are associated (or correlated) with Security Federal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Security Federal has no effect on the direction of Volkswagen i.e., Volkswagen and Security Federal go up and down completely randomly.

Pair Corralation between Volkswagen and Security Federal

Assuming the 90 days horizon Volkswagen AG is expected to under-perform the Security Federal. But the pink sheet apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.25 times less risky than Security Federal. The pink sheet trades about -0.04 of its potential returns per unit of risk. The Security Federal is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  2,453  in Security Federal on September 26, 2024 and sell it today you would earn a total of  247.00  from holding Security Federal or generate 10.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	72.84%
Values	Daily Returns

Volkswagen AG  vs.  Security Federal

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. Despite fragile 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.

Security Federal

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Security Federal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent fundamental indicators, Security Federal is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Volkswagen and Security Federal

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

The idea behind Volkswagen AG and Security Federal 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.