Correlation Between Aedas Homes and Volkswagen

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

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

Diversification Opportunities for Aedas Homes and Volkswagen

0.59

Correlation Coefficient

Aedas Homes  Volkswagen

Very weak diversification

The 3 months correlation between Aedas and Volkswagen is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Aedas Homes SA and Volkswagen AG VZO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG VZO and Aedas Homes 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 Aedas Homes SA 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 VZO has no effect on the direction of Aedas Homes i.e., Aedas Homes and Volkswagen go up and down completely randomly.

Pair Corralation between Aedas Homes and Volkswagen

Assuming the 90 days horizon Aedas Homes is expected to generate 1.11 times less return on investment than Volkswagen. In addition to that, Aedas Homes is 1.06 times more volatile than Volkswagen AG VZO. It trades about 0.11 of its total potential returns per unit of risk. Volkswagen AG VZO is currently generating about 0.13 per unit of volatility. If you would invest  8,866  in Volkswagen AG VZO on December 25, 2024 and sell it today you would earn a total of  1,274  from holding Volkswagen AG VZO or generate 14.37% return on investment over 90 days.

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

Aedas Homes SA  vs.  Volkswagen AG VZO

Aedas Homes SA

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Aedas Homes SA are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Aedas Homes reported solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG VZO

Risk-Adjusted Performance

OK

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

Pair Trading with Aedas Homes and Volkswagen

The main advantage of trading using opposite Aedas Homes and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Aedas Homes 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 Aedas Homes SA and Volkswagen AG VZO 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.