Correlation Between MERCEDES-BENZ GRP and VOLKSWAGEN ADR

Can any of the company-specific risk be diversified away by investing in both MERCEDES-BENZ GRP and VOLKSWAGEN ADR 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 ADR 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 ADR 110ON, you can compare the effects of market volatilities on MERCEDES-BENZ GRP and VOLKSWAGEN ADR 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 ADR. Check out your portfolio center. Please also check ongoing floating volatility patterns of MERCEDES-BENZ GRP and VOLKSWAGEN ADR.

Diversification Opportunities for MERCEDES-BENZ GRP and VOLKSWAGEN ADR

0.83

Correlation Coefficient

MERCEDES-BENZ GRP  VOLKSWAGEN ADR

Very poor diversification

The 3 months correlation between MERCEDES-BENZ and VOLKSWAGEN is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding MERCEDES BENZ GRP ADR14 and VOLKSWAGEN ADR 110ON in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VOLKSWAGEN ADR 110ON 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 ADR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VOLKSWAGEN ADR 110ON has no effect on the direction of MERCEDES-BENZ GRP i.e., MERCEDES-BENZ GRP and VOLKSWAGEN ADR go up and down completely randomly.

Pair Corralation between MERCEDES-BENZ GRP and VOLKSWAGEN ADR

Assuming the 90 days trading horizon MERCEDES BENZ GRP ADR14 is expected to generate 1.18 times more return on investment than VOLKSWAGEN ADR. However, MERCEDES-BENZ GRP is 1.18 times more volatile than VOLKSWAGEN ADR 110ON. It trades about -0.04 of its potential returns per unit of risk. VOLKSWAGEN ADR 110ON is currently generating about -0.08 per unit of risk. If you would invest  1,560  in MERCEDES BENZ GRP ADR14 on September 26, 2024 and sell it today you would lose (250.00) from holding MERCEDES BENZ GRP ADR14 or give up 16.03% of portfolio value 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 ADR 110ON

MERCEDES BENZ GRP

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days MERCEDES BENZ GRP ADR14 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward indicators, MERCEDES-BENZ GRP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

VOLKSWAGEN ADR 110ON

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VOLKSWAGEN ADR 110ON 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.

Pair Trading with MERCEDES-BENZ GRP and VOLKSWAGEN ADR

The main advantage of trading using opposite MERCEDES-BENZ GRP and VOLKSWAGEN ADR positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MERCEDES-BENZ GRP position performs unexpectedly, VOLKSWAGEN ADR 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 ADR will offset losses from the drop in VOLKSWAGEN ADR's long position.

The idea behind MERCEDES BENZ GRP ADR14 and VOLKSWAGEN ADR 110ON 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.