Correlation Between Porsche Automobil and Mercedes Benz

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

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

Diversification Opportunities for Porsche Automobil and Mercedes Benz

0.88

Correlation Coefficient

Porsche Automobil  Mercedes Benz

Very poor diversification

The 3 months correlation between Porsche and Mercedes is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Porsche Automobil Holding and Mercedes Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes Benz Group and Porsche Automobil 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 Porsche Automobil Holding are associated (or correlated) with Mercedes Benz. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes Benz Group has no effect on the direction of Porsche Automobil i.e., Porsche Automobil and Mercedes Benz go up and down completely randomly.

Pair Corralation between Porsche Automobil and Mercedes Benz

Assuming the 90 days horizon Porsche Automobil Holding is expected to under-perform the Mercedes Benz. In addition to that, Porsche Automobil is 1.3 times more volatile than Mercedes Benz Group AG. It trades about -0.11 of its total potential returns per unit of risk. Mercedes Benz Group AG is currently generating about -0.14 per unit of volatility. If you would invest  1,665  in Mercedes Benz Group AG on September 3, 2024 and sell it today you would lose (274.00) from holding Mercedes Benz Group AG or give up 16.46% of portfolio value over 90 days.

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

Porsche Automobil Holding  vs.  Mercedes Benz Group AG

Porsche Automobil Holding

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Porsche Automobil Holding 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 technical 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.

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. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Porsche Automobil and Mercedes Benz

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

The idea behind Porsche Automobil Holding and Mercedes Benz Group 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.

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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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.