Correlation Between Volkswagen and La-Z-Boy Incorporated

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

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

Diversification Opportunities for Volkswagen and La-Z-Boy Incorporated

-0.71

Correlation Coefficient

Volkswagen  La-Z-Boy Incorporated

Pay attention - limited upside

The 3 months correlation between Volkswagen and La-Z-Boy is -0.71. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and La Z Boy Incorporated in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on La-Z-Boy Incorporated 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 La-Z-Boy Incorporated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of La-Z-Boy Incorporated has no effect on the direction of Volkswagen i.e., Volkswagen and La-Z-Boy Incorporated go up and down completely randomly.

Pair Corralation between Volkswagen and La-Z-Boy Incorporated

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the La-Z-Boy Incorporated. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.2 times less risky than La-Z-Boy Incorporated. The stock trades about -0.09 of its potential returns per unit of risk. The La Z Boy Incorporated is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  3,780  in La Z Boy Incorporated on September 28, 2024 and sell it today you would earn a total of  300.00  from holding La Z Boy Incorporated or generate 7.94% return on investment over 90 days.

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

Volkswagen AG  vs.  La Z Boy Incorporated

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 latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

La-Z-Boy Incorporated

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in La Z Boy Incorporated are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, La-Z-Boy Incorporated may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Volkswagen and La-Z-Boy Incorporated

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

The idea behind Volkswagen AG and La Z Boy Incorporated 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.