Correlation Between Mazda and Volkswagen

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

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

Diversification Opportunities for Mazda and Volkswagen

0.46

Correlation Coefficient

Mazda  Volkswagen

Very weak diversification

The 3 months correlation between Mazda and Volkswagen is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Mazda Motor Corp and Volkswagen AG VZO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG VZO and Mazda 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 Mazda Motor Corp 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 VZO has no effect on the direction of Mazda i.e., Mazda and Volkswagen go up and down completely randomly.

Pair Corralation between Mazda and Volkswagen

Assuming the 90 days horizon Mazda Motor Corp is expected to under-perform the Volkswagen. But the pink sheet apears to be less risky and, when comparing its historical volatility, Mazda Motor Corp is 1.83 times less risky than Volkswagen. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Volkswagen AG VZO is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  9,244  in Volkswagen AG VZO on December 30, 2024 and sell it today you would earn a total of  1,262  from holding Volkswagen AG VZO or generate 13.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.39%
Values	Daily Returns

Mazda Motor Corp  vs.  Volkswagen AG VZO

Mazda Motor Corp

Risk-Adjusted Performance

Very Weak

Over the last 90 days Mazda Motor Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Mazda is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Volkswagen AG VZO

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG VZO are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Volkswagen reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Mazda and Volkswagen

The main advantage of trading using opposite Mazda and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mazda 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 Mazda Motor Corp and Volkswagen AG VZO 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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.