Correlation Between BYD and Volkswagen

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

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

Diversification Opportunities for BYD and Volkswagen

0.07

Correlation Coefficient

BYD  Volkswagen

Significant diversification

The 3 months correlation between BYD and Volkswagen is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co and Volkswagen AG Non Vtg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG Non and BYD 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 BYD Co are associated (or correlated) with Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG Non has no effect on the direction of BYD i.e., BYD and Volkswagen go up and down completely randomly.

Pair Corralation between BYD and Volkswagen

Assuming the 90 days trading horizon BYD is expected to generate 2.57 times less return on investment than Volkswagen. In addition to that, BYD is 4.46 times more volatile than Volkswagen AG Non Vtg. It trades about 0.03 of its total potential returns per unit of risk. Volkswagen AG Non Vtg is currently generating about 0.32 per unit of volatility. If you would invest  8,122  in Volkswagen AG Non Vtg on September 23, 2024 and sell it today you would earn a total of  786.00  from holding Volkswagen AG Non Vtg or generate 9.68% return on investment over 90 days.

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

BYD Co  vs.  Volkswagen AG Non Vtg

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.

Volkswagen AG Non

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG Non Vtg 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 latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with BYD and Volkswagen

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

The idea behind BYD Co and Volkswagen AG Non Vtg 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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.