Correlation Between Volkswagen and Automatic Data

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

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

Diversification Opportunities for Volkswagen and Automatic Data

0.11

Correlation Coefficient

Volkswagen  Automatic Data

Average diversification

The 3 months correlation between Volkswagen and Automatic is 0.11. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Automatic Data Processing in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Automatic Data Processing 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 Automatic Data. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Automatic Data Processing has no effect on the direction of Volkswagen i.e., Volkswagen and Automatic Data go up and down completely randomly.

Pair Corralation between Volkswagen and Automatic Data

Assuming the 90 days trading horizon Volkswagen is expected to generate 7.85 times less return on investment than Automatic Data. But when comparing it to its historical volatility, Volkswagen AG is 12.45 times less risky than Automatic Data. It trades about 0.12 of its potential returns per unit of risk. Automatic Data Processing is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  29,721  in Automatic Data Processing on December 26, 2024 and sell it today you would earn a total of  119.00  from holding Automatic Data Processing or generate 0.4% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.41%
Values	Daily Returns

Volkswagen AG  vs.  Automatic Data Processing

Volkswagen AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Volkswagen unveiled solid returns over the last few months and may actually be approaching a breakup point.

Automatic Data Processing

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Automatic Data Processing are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Automatic Data unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Automatic Data

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

The idea behind Volkswagen AG and Automatic Data Processing 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 Transaction History module to view history of all your transactions and understand their impact on performance.