Correlation Between Mercedes Benz and Ferrari NV

Can any of the company-specific risk be diversified away by investing in both Mercedes Benz and Ferrari NV 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 Ferrari NV 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 Ferrari NV, you can compare the effects of market volatilities on Mercedes Benz and Ferrari NV 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 Ferrari NV. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercedes Benz and Ferrari NV.

Diversification Opportunities for Mercedes Benz and Ferrari NV

0.8

Correlation Coefficient

Mercedes Benz  Ferrari NV

Very poor diversification

The 3 months correlation between Mercedes and Ferrari is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Mercedes Benz Group AG and Ferrari NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrari NV 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 Ferrari NV. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ferrari NV has no effect on the direction of Mercedes Benz i.e., Mercedes Benz and Ferrari NV go up and down completely randomly.

Pair Corralation between Mercedes Benz and Ferrari NV

Assuming the 90 days horizon Mercedes Benz Group AG is expected to under-perform the Ferrari NV. In addition to that, Mercedes Benz is 1.11 times more volatile than Ferrari NV. It trades about -0.15 of its total potential returns per unit of risk. Ferrari NV is currently generating about -0.1 per unit of volatility. If you would invest  48,668  in Ferrari NV on September 2, 2024 and sell it today you would lose (5,252) from holding Ferrari NV or give up 10.79% of portfolio value over 90 days.

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

Mercedes Benz Group AG  vs.  Ferrari NV

Mercedes Benz Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Mercedes Benz Group 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 January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Ferrari NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ferrari NV has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Mercedes Benz and Ferrari NV

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

The idea behind Mercedes Benz Group AG and Ferrari NV 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.