Correlation Between R Co and Volkswagen

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

By analyzing existing cross correlation between R co Valor F and Volkswagen AG, you can compare the effects of market volatilities on R Co and Volkswagen 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 R Co with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of R Co and Volkswagen.

Diversification Opportunities for R Co and Volkswagen

-0.52

Correlation Coefficient

R Co  Volkswagen

Excellent diversification

The 3 months correlation between 0P00017SX2 and Volkswagen is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding R co Valor F and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and R Co 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 R co Valor F are associated (or correlated) with Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of R Co i.e., R Co and Volkswagen go up and down completely randomly.

Pair Corralation between R Co and Volkswagen

Assuming the 90 days trading horizon R co Valor F is expected to generate 0.45 times more return on investment than Volkswagen. However, R co Valor F is 2.2 times less risky than Volkswagen. It trades about 0.13 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.08 per unit of risk. If you would invest  284,887  in R co Valor F on September 23, 2024 and sell it today you would earn a total of  18,234  from holding R co Valor F or generate 6.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	98.48%
Values	Daily Returns

R co Valor F  vs.  Volkswagen AG

R co Valor

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in R co Valor F are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, R Co is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

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. In spite of latest uncertain performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with R Co and Volkswagen

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

The idea behind R co Valor F and Volkswagen AG 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.