Correlation Between International Biotechnology and Volkswagen

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

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

Diversification Opportunities for International Biotechnology and Volkswagen

-0.46

Correlation Coefficient

International Biotechnology  Volkswagen

Very good diversification

The 3 months correlation between International and Volkswagen is -0.46. Overlapping area represents the amount of risk that can be diversified away by holding International Biotechnology Tr and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and International Biotechnology 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 International Biotechnology Trust 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 International Biotechnology i.e., International Biotechnology and Volkswagen go up and down completely randomly.

Pair Corralation between International Biotechnology and Volkswagen

Assuming the 90 days trading horizon International Biotechnology Trust is expected to under-perform the Volkswagen. But the stock apears to be less risky and, when comparing its historical volatility, International Biotechnology Trust is 1.83 times less risky than Volkswagen. The stock trades about -0.08 of its potential returns per unit of risk. The Volkswagen AG is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,115  in Volkswagen AG on December 27, 2024 and sell it today you would earn a total of  1,038  from holding Volkswagen AG or generate 11.39% return on investment over 90 days.

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

International Biotechnology Tr  vs.  Volkswagen AG

International Biotechnology

Risk-Adjusted Performance

Very Weak

Over the last 90 days International Biotechnology Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, International Biotechnology is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Volkswagen AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Volkswagen may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with International Biotechnology and Volkswagen

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

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.