Correlation Between Dongfeng and Volkswagen

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

By analyzing existing cross correlation between Dongfeng Group and Volkswagen AG 110, you can compare the effects of market volatilities on Dongfeng 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 Dongfeng with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dongfeng and Volkswagen.

Diversification Opportunities for Dongfeng and Volkswagen

-0.73

Correlation Coefficient

Dongfeng  Volkswagen

Pay attention - limited upside

The 3 months correlation between Dongfeng and Volkswagen is -0.73. Overlapping area represents the amount of risk that can be diversified away by holding Dongfeng Group and Volkswagen AG 110 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 110 and Dongfeng 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 Dongfeng 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 110 has no effect on the direction of Dongfeng i.e., Dongfeng and Volkswagen go up and down completely randomly.

Pair Corralation between Dongfeng and Volkswagen

Assuming the 90 days horizon Dongfeng Group is expected to generate 2.71 times more return on investment than Volkswagen. However, Dongfeng is 2.71 times more volatile than Volkswagen AG 110. It trades about 0.22 of its potential returns per unit of risk. Volkswagen AG 110 is currently generating about 0.16 per unit of risk. If you would invest  48.00  in Dongfeng Group on September 21, 2024 and sell it today you would earn a total of  7.00  from holding Dongfeng Group or generate 14.58% return on investment over 90 days.

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

Dongfeng Group  vs.  Volkswagen AG 110

Dongfeng Group

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Dongfeng Group are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak technical and fundamental indicators, Dongfeng reported solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG 110

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG 110 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Dongfeng and Volkswagen

The main advantage of trading using opposite Dongfeng and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Dongfeng 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 Dongfeng Group and Volkswagen AG 110 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.