Correlation Between Mercedes Benz and Porsche Automobile

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

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

Diversification Opportunities for Mercedes Benz and Porsche Automobile

0.79

Correlation Coefficient

Mercedes Benz  Porsche Automobile

Poor diversification

The 3 months correlation between Mercedes and Porsche is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Mercedes Benz Group AG and Porsche Automobile Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porsche Automobile and Mercedes Benz 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 Group AG are associated (or correlated) with Porsche Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porsche Automobile has no effect on the direction of Mercedes Benz i.e., Mercedes Benz and Porsche Automobile go up and down completely randomly.

Pair Corralation between Mercedes Benz and Porsche Automobile

Assuming the 90 days horizon Mercedes Benz Group AG is expected to generate 1.12 times more return on investment than Porsche Automobile. However, Mercedes Benz is 1.12 times more volatile than Porsche Automobile Holding. It trades about 0.15 of its potential returns per unit of risk. Porsche Automobile Holding is currently generating about 0.12 per unit of risk. If you would invest  5,598  in Mercedes Benz Group AG on November 28, 2024 and sell it today you would earn a total of  826.00  from holding Mercedes Benz Group AG or generate 14.76% return on investment over 90 days.

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

Mercedes Benz Group AG  vs.  Porsche Automobile Holding

Mercedes Benz Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mercedes Benz Group AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Mercedes Benz reported solid returns over the last few months and may actually be approaching a breakup point.

Porsche Automobile

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Porsche Automobile Holding are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, Porsche Automobile may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Pair Trading with Mercedes Benz and Porsche Automobile

The main advantage of trading using opposite Mercedes Benz and Porsche Automobile positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mercedes Benz position performs unexpectedly, Porsche Automobile 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 Porsche Automobile will offset losses from the drop in Porsche Automobile's long position.

The idea behind Mercedes Benz Group AG and Porsche Automobile Holding 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.