Correlation Between Volkswagen and Ensign

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

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

Diversification Opportunities for Volkswagen and Ensign

-0.51

Correlation Coefficient

Volkswagen  Ensign

Excellent diversification

The 3 months correlation between Volkswagen and Ensign is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and The Ensign Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ensign 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 Ensign. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ensign Group has no effect on the direction of Volkswagen i.e., Volkswagen and Ensign go up and down completely randomly.

Pair Corralation between Volkswagen and Ensign

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Ensign. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.27 times less risky than Ensign. The stock trades about -0.18 of its potential returns per unit of risk. The The Ensign Group is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  13,194  in The Ensign Group on September 4, 2024 and sell it today you would earn a total of  506.00  from holding The Ensign Group or generate 3.84% return on investment over 90 days.

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

Volkswagen AG  vs.  The Ensign 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Ensign Group

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in The Ensign Group are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Ensign is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Volkswagen and Ensign

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

The idea behind Volkswagen AG and The Ensign 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.