Correlation Between Volkswagen and Rheinmetall

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

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

Diversification Opportunities for Volkswagen and Rheinmetall

-0.74

Correlation Coefficient

Volkswagen  Rheinmetall

Pay attention - limited upside

The 3 months correlation between Volkswagen and Rheinmetall is -0.74. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Rheinmetall AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Rheinmetall AG 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 Rheinmetall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Rheinmetall AG has no effect on the direction of Volkswagen i.e., Volkswagen and Rheinmetall go up and down completely randomly.

Pair Corralation between Volkswagen and Rheinmetall

Assuming the 90 days trading horizon Volkswagen is expected to generate 1.83 times less return on investment than Rheinmetall. But when comparing it to its historical volatility, Volkswagen AG is 1.23 times less risky than Rheinmetall. It trades about 0.13 of its potential returns per unit of risk. Rheinmetall AG is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  60,577  in Rheinmetall AG on October 11, 2024 and sell it today you would earn a total of  4,143  from holding Rheinmetall AG or generate 6.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Volkswagen AG  vs.  Rheinmetall AG

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 stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Rheinmetall AG

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Rheinmetall AG are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Rheinmetall unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Rheinmetall

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

The idea behind Volkswagen AG and Rheinmetall 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.

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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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.