Correlation Between MERCEDES-BENZ GRP and Volkswagen
Can any of the company-specific risk be diversified away by investing in both MERCEDES-BENZ GRP 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 MERCEDES-BENZ GRP and Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MERCEDES BENZ GRP ADR14 and Volkswagen AG, you can compare the effects of market volatilities on MERCEDES-BENZ GRP 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 MERCEDES-BENZ GRP with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of MERCEDES-BENZ GRP and Volkswagen.
Diversification Opportunities for MERCEDES-BENZ GRP and Volkswagen
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between MERCEDES-BENZ and Volkswagen is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding MERCEDES BENZ GRP ADR14 and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and MERCEDES-BENZ GRP 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 MERCEDES BENZ GRP ADR14 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 MERCEDES-BENZ GRP i.e., MERCEDES-BENZ GRP and Volkswagen go up and down completely randomly.
Pair Corralation between MERCEDES-BENZ GRP and Volkswagen
Assuming the 90 days trading horizon MERCEDES-BENZ GRP is expected to generate 3.29 times less return on investment than Volkswagen. In addition to that, MERCEDES-BENZ GRP is 1.62 times more volatile than Volkswagen AG. It trades about 0.04 of its total potential returns per unit of risk. Volkswagen AG is currently generating about 0.22 per unit of volatility. If you would invest 8,595 in Volkswagen AG on September 25, 2024 and sell it today you would earn a total of 600.00 from holding Volkswagen AG or generate 6.98% return on investment over 90 days.
Time Period | 3 Months [change] |
Direction | Moves Together |
Strength | Strong |
Accuracy | 100.0% |
Values | Daily Returns |
MERCEDES BENZ GRP ADR14 vs. Volkswagen AG
Performance |
Timeline |
MERCEDES BENZ GRP |
Volkswagen AG |
MERCEDES-BENZ GRP and Volkswagen Volatility Contrast
Predicted Return Density |
Returns |
Pair Trading with MERCEDES-BENZ GRP and Volkswagen
The main advantage of trading using opposite MERCEDES-BENZ GRP and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MERCEDES-BENZ GRP 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.MERCEDES-BENZ GRP vs. BYD Company Limited | MERCEDES-BENZ GRP vs. VOLKSWAGEN ADR 110ON | MERCEDES-BENZ GRP vs. VOLKSWAGEN AG VZ | MERCEDES-BENZ GRP vs. Volkswagen AG |
Volkswagen vs. BYD Company Limited | Volkswagen vs. MERCEDES BENZ GRP ADR14 | Volkswagen vs. VOLKSWAGEN ADR 110ON | Volkswagen vs. VOLKSWAGEN AG VZ |
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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.
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