Correlation Between Volkswagen and Porsche Automobil

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

By analyzing existing cross correlation between Volkswagen AG 110 and Porsche Automobil Holding, you can compare the effects of market volatilities on Volkswagen and Porsche Automobil 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 Porsche Automobil. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Porsche Automobil.

Diversification Opportunities for Volkswagen and Porsche Automobil

0.94

Correlation Coefficient

Volkswagen  Porsche Automobil

Almost no diversification

The 3 months correlation between Volkswagen and Porsche is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG 110 and Porsche Automobil Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porsche Automobil Holding 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 110 are associated (or correlated) with Porsche Automobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porsche Automobil Holding has no effect on the direction of Volkswagen i.e., Volkswagen and Porsche Automobil go up and down completely randomly.

Pair Corralation between Volkswagen and Porsche Automobil

Assuming the 90 days horizon Volkswagen AG 110 is expected to under-perform the Porsche Automobil. But the pink sheet apears to be less risky and, when comparing its historical volatility, Volkswagen AG 110 is 1.25 times less risky than Porsche Automobil. The pink sheet trades about -0.19 of its potential returns per unit of risk. The Porsche Automobil Holding is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  4,308  in Porsche Automobil Holding on September 3, 2024 and sell it today you would lose (748.00) from holding Porsche Automobil Holding or give up 17.36% 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 110  vs.  Porsche Automobil Holding

Volkswagen AG 110

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG 110 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Porsche Automobil Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Porsche Automobil Holding has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's technical 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.

Pair Trading with Volkswagen and Porsche Automobil

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

The idea behind Volkswagen AG 110 and Porsche Automobil Holding 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.