Correlation Between BYD Company and Volkswagen

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

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

Diversification Opportunities for BYD Company and Volkswagen

0.67

Correlation Coefficient

BYD Company  Volkswagen

Poor diversification

The 3 months correlation between BYD and Volkswagen is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding BYD Company Limited 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 BYD Company 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 Company Limited 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 BYD Company i.e., BYD Company and Volkswagen go up and down completely randomly.

Pair Corralation between BYD Company and Volkswagen

Assuming the 90 days trading horizon BYD Company Limited is expected to generate 1.92 times more return on investment than Volkswagen. However, BYD Company is 1.92 times more volatile than Volkswagen AG VZO. It trades about 0.02 of its potential returns per unit of risk. Volkswagen AG VZO is currently generating about -0.02 per unit of risk. If you would invest  5,309  in BYD Company Limited on October 13, 2024 and sell it today you would earn a total of  841.00  from holding BYD Company Limited or generate 15.84% return on investment over 90 days.

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

BYD Company Limited  vs.  Volkswagen AG VZO

BYD Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BYD Company Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile 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 VZO

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with BYD Company and Volkswagen

The main advantage of trading using opposite BYD Company and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Company 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 Company Limited 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.