Correlation Between Volkswagen and Federal Agricultural

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

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

Diversification Opportunities for Volkswagen and Federal Agricultural

-0.83

Correlation Coefficient

Volkswagen  Federal Agricultural

Pay attention - limited upside

The 3 months correlation between Volkswagen and Federal is -0.83. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Federal Agricultural Mortgage in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Federal Agricultural 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 Federal Agricultural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Federal Agricultural has no effect on the direction of Volkswagen i.e., Volkswagen and Federal Agricultural go up and down completely randomly.

Pair Corralation between Volkswagen and Federal Agricultural

Assuming the 90 days horizon Volkswagen AG is expected to under-perform the Federal Agricultural. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.11 times less risky than Federal Agricultural. The stock trades about -0.18 of its potential returns per unit of risk. The Federal Agricultural Mortgage is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  17,650  in Federal Agricultural Mortgage on August 31, 2024 and sell it today you would earn a total of  2,550  from holding Federal Agricultural Mortgage or generate 14.45% return on investment over 90 days.

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

Volkswagen AG  vs.  Federal Agricultural Mortgage

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 December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Federal Agricultural

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Federal Agricultural Mortgage are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Federal Agricultural reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Federal Agricultural

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

The idea behind Volkswagen AG and Federal Agricultural Mortgage 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.