Correlation Between OBSERVE MEDICAL and Volkswagen

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

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

Diversification Opportunities for OBSERVE MEDICAL and Volkswagen

-0.58

Correlation Coefficient

OBSERVE MEDICAL  Volkswagen

Excellent diversification

The 3 months correlation between OBSERVE and Volkswagen is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding OBSERVE MEDICAL ASA 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 OBSERVE MEDICAL 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 OBSERVE MEDICAL ASA 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 OBSERVE MEDICAL i.e., OBSERVE MEDICAL and Volkswagen go up and down completely randomly.

Pair Corralation between OBSERVE MEDICAL and Volkswagen

Assuming the 90 days trading horizon OBSERVE MEDICAL is expected to generate 1.22 times less return on investment than Volkswagen. In addition to that, OBSERVE MEDICAL is 6.59 times more volatile than Volkswagen AG VZO. It trades about 0.02 of its total potential returns per unit of risk. Volkswagen AG VZO is currently generating about 0.13 per unit of volatility. If you would invest  8,866  in Volkswagen AG VZO on December 26, 2024 and sell it today you would earn a total of  1,374  from holding Volkswagen AG VZO or generate 15.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	90.16%
Values	Daily Returns

OBSERVE MEDICAL ASA  vs.  Volkswagen AG VZO

OBSERVE MEDICAL ASA

Risk-Adjusted Performance

Weak

Over the last 90 days OBSERVE MEDICAL ASA has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly fragile basic indicators, OBSERVE MEDICAL reported solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG VZO

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG VZO are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Volkswagen exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with OBSERVE MEDICAL and Volkswagen

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

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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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.