Correlation Between Volkswagen and Avis Budget

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

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

Diversification Opportunities for Volkswagen and Avis Budget

-0.81

Correlation Coefficient

Volkswagen  Avis Budget

Pay attention - limited upside

The 3 months correlation between Volkswagen and Avis is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Avis Budget Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Avis Budget Group 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 Avis Budget. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Avis Budget Group has no effect on the direction of Volkswagen i.e., Volkswagen and Avis Budget go up and down completely randomly.

Pair Corralation between Volkswagen and Avis Budget

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Avis Budget. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 2.99 times less risky than Avis Budget. The stock trades about -0.21 of its potential returns per unit of risk. The Avis Budget Group is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  10,460  in Avis Budget Group on August 31, 2024 and sell it today you would lose (55.00) from holding Avis Budget Group or give up 0.53% of portfolio value over 90 days.

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

Volkswagen AG  vs.  Avis Budget Group

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.

Avis Budget Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Avis Budget Group are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Avis Budget reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Avis Budget

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

The idea behind Volkswagen AG and Avis Budget Group 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.