Correlation Between Geely Automobile and Volkswagen

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

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

Diversification Opportunities for Geely Automobile and Volkswagen

-0.33

Correlation Coefficient

Geely Automobile  Volkswagen

Very good diversification

The 3 months correlation between Geely and Volkswagen is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Geely Automobile Holdings and Volkswagen AG Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG Pref and Geely Automobile 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 Geely Automobile Holdings 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 Pref has no effect on the direction of Geely Automobile i.e., Geely Automobile and Volkswagen go up and down completely randomly.

Pair Corralation between Geely Automobile and Volkswagen

Assuming the 90 days horizon Geely Automobile Holdings is expected to under-perform the Volkswagen. In addition to that, Geely Automobile is 2.35 times more volatile than Volkswagen AG Pref. It trades about -0.02 of its total potential returns per unit of risk. Volkswagen AG Pref is currently generating about 0.35 per unit of volatility. If you would invest  839.00  in Volkswagen AG Pref on October 4, 2024 and sell it today you would earn a total of  73.00  from holding Volkswagen AG Pref or generate 8.7% return on investment over 90 days.

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

Geely Automobile Holdings  vs.  Volkswagen AG Pref

Geely Automobile Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Geely Automobile Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Geely Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG Pref

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG Pref has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Geely Automobile and Volkswagen

The main advantage of trading using opposite Geely Automobile and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Geely Automobile 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 Geely Automobile Holdings and Volkswagen AG Pref 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.