Correlation Between Volkswagen and Renaissance Europe

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

By analyzing existing cross correlation between Volkswagen AG and Renaissance Europe C, you can compare the effects of market volatilities on Volkswagen and Renaissance Europe 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 Renaissance Europe. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Renaissance Europe.

Diversification Opportunities for Volkswagen and Renaissance Europe

0.84

Correlation Coefficient

Volkswagen  Renaissance Europe

Very poor diversification

The 3 months correlation between Volkswagen and Renaissance is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Renaissance Europe C in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Renaissance Europe 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 Renaissance Europe. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Renaissance Europe has no effect on the direction of Volkswagen i.e., Volkswagen and Renaissance Europe go up and down completely randomly.

Pair Corralation between Volkswagen and Renaissance Europe

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Renaissance Europe. In addition to that, Volkswagen is 1.85 times more volatile than Renaissance Europe C. It trades about -0.06 of its total potential returns per unit of risk. Renaissance Europe C is currently generating about -0.02 per unit of volatility. If you would invest  27,315  in Renaissance Europe C on September 12, 2024 and sell it today you would lose (395.00) from holding Renaissance Europe C or give up 1.45% of portfolio value over 90 days.

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

Volkswagen AG  vs.  Renaissance Europe C

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 fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Renaissance Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Renaissance Europe C has generated negative risk-adjusted returns adding no value to fund investors. Despite somewhat strong basic indicators, Renaissance Europe is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Volkswagen and Renaissance Europe

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

The idea behind Volkswagen AG and Renaissance Europe C 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.

Check out your portfolio center.

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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.