Correlation Between Volkswagen and International Biotechnology

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

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

Diversification Opportunities for Volkswagen and International Biotechnology

-0.51

Correlation Coefficient

Volkswagen  International Biotechnology

Excellent diversification

The 3 months correlation between Volkswagen and International is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Non Vtg and International Biotechnology Tr in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on International Biotechnology 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 Non Vtg are associated (or correlated) with International Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of International Biotechnology has no effect on the direction of Volkswagen i.e., Volkswagen and International Biotechnology go up and down completely randomly.

Pair Corralation between Volkswagen and International Biotechnology

Assuming the 90 days trading horizon Volkswagen AG Non Vtg is expected to generate 1.84 times more return on investment than International Biotechnology. However, Volkswagen is 1.84 times more volatile than International Biotechnology Trust. It trades about 0.1 of its potential returns per unit of risk. International Biotechnology Trust is currently generating about -0.08 per unit of risk. If you would invest  8,845  in Volkswagen AG Non Vtg on December 27, 2024 and sell it today you would earn a total of  1,088  from holding Volkswagen AG Non Vtg or generate 12.3% return on investment over 90 days.

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

Volkswagen AG Non Vtg  vs.  International Biotechnology Tr

Volkswagen AG Non

Risk-Adjusted Performance

OK

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

International Biotechnology

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Biotechnology Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, International Biotechnology is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Volkswagen and International Biotechnology

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

The idea behind Volkswagen AG Non Vtg and International Biotechnology Trust 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.