Correlation Between Volkswagen and BYD

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

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

Diversification Opportunities for Volkswagen and BYD

0.06

Correlation Coefficient

Volkswagen  BYD

Significant diversification

The 3 months correlation between Volkswagen and BYD is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and BYD Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co 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 BYD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of Volkswagen i.e., Volkswagen and BYD go up and down completely randomly.

Pair Corralation between Volkswagen and BYD

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 0.22 times more return on investment than BYD. However, Volkswagen AG is 4.65 times less risky than BYD. It trades about 0.31 of its potential returns per unit of risk. BYD Co is currently generating about 0.03 per unit of risk. If you would invest  8,320  in Volkswagen AG on September 23, 2024 and sell it today you would earn a total of  748.00  from holding Volkswagen AG or generate 8.99% return on investment over 90 days.

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

Volkswagen AG  vs.  BYD Co

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

BYD Co

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, BYD unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and BYD

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

The idea behind Volkswagen AG and BYD Co 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.