Correlation Between Volkswagen and Fortinet

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

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

Diversification Opportunities for Volkswagen and Fortinet

-0.88

Correlation Coefficient

Volkswagen  Fortinet

Pay attention - limited upside

The 3 months correlation between Volkswagen and Fortinet is -0.88. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Fortinet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortinet 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 VZO are associated (or correlated) with Fortinet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortinet has no effect on the direction of Volkswagen i.e., Volkswagen and Fortinet go up and down completely randomly.

Pair Corralation between Volkswagen and Fortinet

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the Fortinet. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG VZO is 1.39 times less risky than Fortinet. The stock trades about -0.17 of its potential returns per unit of risk. The Fortinet is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  6,902  in Fortinet on September 3, 2024 and sell it today you would earn a total of  2,132  from holding Fortinet or generate 30.89% return on investment over 90 days.

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

Volkswagen AG VZO  vs.  Fortinet

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Fortinet

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Fortinet are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Fortinet reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Fortinet

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

The idea behind Volkswagen AG VZO and Fortinet 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.