Correlation Between Volkswagen and BYD Company

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

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

Diversification Opportunities for Volkswagen and BYD Company

0.12

Correlation Coefficient

Volkswagen  BYD Company

Average diversification

The 3 months correlation between Volkswagen and BYD is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and BYD Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Limited 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 BYD Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Limited has no effect on the direction of Volkswagen i.e., Volkswagen and BYD Company go up and down completely randomly.

Pair Corralation between Volkswagen and BYD Company

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 0.42 times more return on investment than BYD Company. However, Volkswagen AG is 2.4 times less risky than BYD Company. It trades about 0.19 of its potential returns per unit of risk. BYD Company Limited is currently generating about 0.07 per unit of risk. If you would invest  8,500  in Volkswagen AG on September 25, 2024 and sell it today you would earn a total of  445.00  from holding Volkswagen AG or generate 5.24% return on investment over 90 days.

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

Volkswagen AG  vs.  BYD Company Limited

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 stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

BYD Limited

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Company Limited are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, BYD Company reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and BYD Company

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

The idea behind Volkswagen AG and BYD Company Limited 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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..