Correlation Between VOLKSWAGEN and MERCEDES-BENZ GRP

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

By analyzing existing cross correlation between VOLKSWAGEN AG VZ and MERCEDES BENZ GRP ADR14, you can compare the effects of market volatilities on VOLKSWAGEN and MERCEDES-BENZ GRP 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 MERCEDES-BENZ GRP. Check out your portfolio center. Please also check ongoing floating volatility patterns of VOLKSWAGEN and MERCEDES-BENZ GRP.

Diversification Opportunities for VOLKSWAGEN and MERCEDES-BENZ GRP

0.88

Correlation Coefficient

VOLKSWAGEN  MERCEDES-BENZ GRP

Very poor diversification

The 3 months correlation between VOLKSWAGEN and MERCEDES-BENZ is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding VOLKSWAGEN AG VZ and MERCEDES BENZ GRP ADR14 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MERCEDES BENZ GRP 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 VZ are associated (or correlated) with MERCEDES-BENZ GRP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MERCEDES BENZ GRP has no effect on the direction of VOLKSWAGEN i.e., VOLKSWAGEN and MERCEDES-BENZ GRP go up and down completely randomly.

Pair Corralation between VOLKSWAGEN and MERCEDES-BENZ GRP

Assuming the 90 days trading horizon VOLKSWAGEN AG VZ is expected to under-perform the MERCEDES-BENZ GRP. But the stock apears to be less risky and, when comparing its historical volatility, VOLKSWAGEN AG VZ is 1.62 times less risky than MERCEDES-BENZ GRP. The stock trades about -0.06 of its potential returns per unit of risk. The MERCEDES BENZ GRP ADR14 is currently generating about -0.03 of returns per unit of risk over similar time horizon. If you would invest  1,390  in MERCEDES BENZ GRP ADR14 on September 24, 2024 and sell it today you would lose (90.00) from holding MERCEDES BENZ GRP ADR14 or give up 6.47% of portfolio value over 90 days.

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

VOLKSWAGEN AG VZ  vs.  MERCEDES BENZ GRP ADR14

VOLKSWAGEN AG VZ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VOLKSWAGEN AG VZ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, VOLKSWAGEN is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

MERCEDES BENZ GRP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MERCEDES BENZ GRP ADR14 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, MERCEDES-BENZ GRP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VOLKSWAGEN and MERCEDES-BENZ GRP

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

The idea behind VOLKSWAGEN AG VZ and MERCEDES BENZ GRP ADR14 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.