Correlation Between Porsche Automobil and Ferrari NV

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

Diversification Opportunities for Porsche Automobil and Ferrari NV

0.25

Correlation Coefficient

Porsche Automobil  Ferrari NV

Modest diversification

The 3 months correlation between Porsche and Ferrari is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Porsche Automobil Holding and Ferrari NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ferrari NV 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 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 Porsche Automobil i.e., Porsche Automobil and Ferrari NV go up and down completely randomly.

Pair Corralation between Porsche Automobil and Ferrari NV

Assuming the 90 days horizon Porsche Automobil Holding is expected to generate 1.18 times more return on investment than Ferrari NV. However, Porsche Automobil is 1.18 times more volatile than Ferrari NV. It trades about 0.02 of its potential returns per unit of risk. Ferrari NV is currently generating about 0.02 per unit of risk. If you would invest  3,811  in Porsche Automobil Holding on December 30, 2024 and sell it today you would earn a total of  39.00  from holding Porsche Automobil Holding or generate 1.02% return on investment over 90 days.

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

Porsche Automobil Holding  vs.  Ferrari NV

Porsche Automobil Holding

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Porsche Automobil Holding are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Porsche Automobil is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Ferrari NV

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrari NV are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Ferrari NV is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Porsche Automobil and Ferrari NV

The main advantage of trading using opposite Porsche Automobil and Ferrari NV positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Porsche Automobil 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 Porsche Automobil Holding 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.