Correlation Between Volkswagen and Finnair Oyj

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

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

Diversification Opportunities for Volkswagen and Finnair Oyj

0.86

Correlation Coefficient

Volkswagen  Finnair Oyj

Very poor diversification

The 3 months correlation between Volkswagen and Finnair is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Finnair Oyj in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Finnair Oyj 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 are associated (or correlated) with Finnair Oyj. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Finnair Oyj has no effect on the direction of Volkswagen i.e., Volkswagen and Finnair Oyj go up and down completely randomly.

Pair Corralation between Volkswagen and Finnair Oyj

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 0.72 times more return on investment than Finnair Oyj. However, Volkswagen AG is 1.39 times less risky than Finnair Oyj. It trades about -0.04 of its potential returns per unit of risk. Finnair Oyj is currently generating about -0.07 per unit of risk. If you would invest  11,179  in Volkswagen AG on October 9, 2024 and sell it today you would lose (2,059) from holding Volkswagen AG or give up 18.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	99.6%
Values	Daily Returns

Volkswagen AG  vs.  Finnair Oyj

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 comparatively stable basic indicators, Volkswagen is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Finnair Oyj

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Finnair Oyj has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Finnair Oyj is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Volkswagen and Finnair Oyj

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

The idea behind Volkswagen AG and Finnair Oyj 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 USA ETFs module to find actively traded Exchange Traded Funds (ETF) in USA.