Correlation Between Federal Agricultural and VOLKSWAGEN

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

By analyzing existing cross correlation between Federal Agricultural Mortgage and VOLKSWAGEN AG VZ, you can compare the effects of market volatilities on Federal Agricultural 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 Federal Agricultural with a short position of VOLKSWAGEN. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federal Agricultural and VOLKSWAGEN.

Diversification Opportunities for Federal Agricultural and VOLKSWAGEN

-0.36

Correlation Coefficient

Federal Agricultural  VOLKSWAGEN

Very good diversification

The 3 months correlation between Federal and VOLKSWAGEN is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Federal Agricultural Mortgage and VOLKSWAGEN AG VZ in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLKSWAGEN AG VZ and Federal Agricultural 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 Federal Agricultural Mortgage 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 VZ has no effect on the direction of Federal Agricultural i.e., Federal Agricultural and VOLKSWAGEN go up and down completely randomly.

Pair Corralation between Federal Agricultural and VOLKSWAGEN

Assuming the 90 days horizon Federal Agricultural Mortgage is expected to under-perform the VOLKSWAGEN. But the stock apears to be less risky and, when comparing its historical volatility, Federal Agricultural Mortgage is 1.22 times less risky than VOLKSWAGEN. The stock trades about -0.06 of its potential returns per unit of risk. The VOLKSWAGEN AG VZ is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  865.00  in VOLKSWAGEN AG VZ on December 23, 2024 and sell it today you would earn a total of  155.00  from holding VOLKSWAGEN AG VZ or generate 17.92% return on investment over 90 days.

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

Federal Agricultural Mortgage  vs.  VOLKSWAGEN AG VZ

Federal Agricultural

Risk-Adjusted Performance

Very Weak

Over the last 90 days Federal Agricultural Mortgage has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

VOLKSWAGEN AG VZ

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in VOLKSWAGEN AG VZ are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, VOLKSWAGEN reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Federal Agricultural and VOLKSWAGEN

The main advantage of trading using opposite Federal Agricultural and VOLKSWAGEN positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federal Agricultural 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 Federal Agricultural Mortgage and VOLKSWAGEN AG VZ 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.