Correlation Between Great Wall and Volkswagen

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

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

Diversification Opportunities for Great Wall and Volkswagen

0.67

Correlation Coefficient

Great Wall  Volkswagen

Poor diversification

The 3 months correlation between Great and Volkswagen is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Great Wall Motor and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and Great Wall 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 Great Wall Motor 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 Great Wall i.e., Great Wall and Volkswagen go up and down completely randomly.

Pair Corralation between Great Wall and Volkswagen

Assuming the 90 days horizon Great Wall Motor is expected to generate 2.46 times more return on investment than Volkswagen. However, Great Wall is 2.46 times more volatile than Volkswagen AG. It trades about -0.05 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.14 per unit of risk. If you would invest  204.00  in Great Wall Motor on October 4, 2024 and sell it today you would lose (33.00) from holding Great Wall Motor or give up 16.18% of portfolio value over 90 days.

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

Great Wall Motor  vs.  Volkswagen AG

Great Wall Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great Wall Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite weak performance in the last few months, the Stock's essential indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

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. Despite weak performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Great Wall and Volkswagen

The main advantage of trading using opposite Great Wall and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Great Wall 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 Great Wall Motor 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.

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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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.