Correlation Between Colt CZ and Volkswagen

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

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

Diversification Opportunities for Colt CZ and Volkswagen

0.27

Correlation Coefficient

Colt CZ  Volkswagen

Modest diversification

The 3 months correlation between Colt and Volkswagen is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Colt CZ Group and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and Colt CZ 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 Colt CZ Group 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 has no effect on the direction of Colt CZ i.e., Colt CZ and Volkswagen go up and down completely randomly.

Pair Corralation between Colt CZ and Volkswagen

Assuming the 90 days trading horizon Colt CZ Group is expected to generate 0.52 times more return on investment than Volkswagen. However, Colt CZ Group is 1.94 times less risky than Volkswagen. It trades about -0.07 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.15 per unit of risk. If you would invest  64,800  in Colt CZ Group on September 1, 2024 and sell it today you would lose (3,000) from holding Colt CZ Group or give up 4.63% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	98.46%
Values	Daily Returns

Colt CZ Group  vs.  Volkswagen AG

Colt CZ Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Colt CZ Group has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical and fundamental indicators, Colt CZ is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. Even with weak performance in the last few months, the Stock's basic indicators remain relatively invariable which may send shares a bit higher in December 2024. The latest agitation may also be a sign of long-running up-swing for the enterprise retail investors.

Pair Trading with Colt CZ and Volkswagen

The main advantage of trading using opposite Colt CZ and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Colt CZ 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 Colt CZ Group and Volkswagen AG 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.

Check out your portfolio center.

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 Global Correlations module to find global opportunities by holding instruments from different markets.