Correlation Between Volkswagen and Indutrade

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

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

Diversification Opportunities for Volkswagen and Indutrade

0.64

Correlation Coefficient

Volkswagen  Indutrade

Poor diversification

The 3 months correlation between Volkswagen and Indutrade is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Indutrade AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indutrade AB 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 Indutrade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indutrade AB has no effect on the direction of Volkswagen i.e., Volkswagen and Indutrade go up and down completely randomly.

Pair Corralation between Volkswagen and Indutrade

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Indutrade. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.06 times less risky than Indutrade. The stock trades about -0.05 of its potential returns per unit of risk. The Indutrade AB is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  22,269  in Indutrade AB on October 10, 2024 and sell it today you would earn a total of  6,461  from holding Indutrade AB or generate 29.01% return on investment over 90 days.

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

Volkswagen AG  vs.  Indutrade AB

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 current stock price uproar, may contribute to short-horizon losses for the private investors.

Indutrade AB

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Volkswagen and Indutrade

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

The idea behind Volkswagen AG and Indutrade AB 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.