Correlation Between VOLKSWAGEN and VOLKSWAGEN ADR

Can any of the company-specific risk be diversified away by investing in both VOLKSWAGEN and VOLKSWAGEN ADR 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 VOLKSWAGEN ADR 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 VOLKSWAGEN ADR 110ON, you can compare the effects of market volatilities on VOLKSWAGEN and VOLKSWAGEN ADR 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 VOLKSWAGEN ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of VOLKSWAGEN and VOLKSWAGEN ADR.

Diversification Opportunities for VOLKSWAGEN and VOLKSWAGEN ADR

0.97

Correlation Coefficient

VOLKSWAGEN  VOLKSWAGEN ADR

Almost no diversification

The 3 months correlation between VOLKSWAGEN and VOLKSWAGEN is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding VOLKSWAGEN AG VZ and VOLKSWAGEN ADR 110ON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLKSWAGEN ADR 110ON 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 VOLKSWAGEN ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VOLKSWAGEN ADR 110ON has no effect on the direction of VOLKSWAGEN i.e., VOLKSWAGEN and VOLKSWAGEN ADR go up and down completely randomly.

Pair Corralation between VOLKSWAGEN and VOLKSWAGEN ADR

Assuming the 90 days trading horizon VOLKSWAGEN AG VZ is expected to generate 0.7 times more return on investment than VOLKSWAGEN ADR. However, VOLKSWAGEN AG VZ is 1.42 times less risky than VOLKSWAGEN ADR. It trades about -0.17 of its potential returns per unit of risk. VOLKSWAGEN ADR 110ON is currently generating about -0.12 per unit of risk. If you would invest  935.00  in VOLKSWAGEN AG VZ on August 31, 2024 and sell it today you would lose (145.00) from holding VOLKSWAGEN AG VZ or give up 15.51% of portfolio value over 90 days.

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

VOLKSWAGEN AG VZ  vs.  VOLKSWAGEN ADR 110ON

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 uncertain 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.

VOLKSWAGEN ADR 110ON

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VOLKSWAGEN ADR 110ON 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.

Pair Trading with VOLKSWAGEN and VOLKSWAGEN ADR

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

The idea behind VOLKSWAGEN AG VZ and VOLKSWAGEN ADR 110ON 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.