Correlation Between Porsche Automobile and Volkswagen

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

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

Diversification Opportunities for Porsche Automobile and Volkswagen

0.92

Correlation Coefficient

Porsche Automobile  Volkswagen

Almost no diversification

The 3 months correlation between Porsche and Volkswagen is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Porsche Automobile Holding 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 Porsche Automobile 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 Automobile Holding 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 Porsche Automobile i.e., Porsche Automobile and Volkswagen go up and down completely randomly.

Pair Corralation between Porsche Automobile and Volkswagen

Assuming the 90 days horizon Porsche Automobile Holding is expected to generate 0.69 times more return on investment than Volkswagen. However, Porsche Automobile Holding is 1.46 times less risky than Volkswagen. It trades about -0.19 of its potential returns per unit of risk. Volkswagen AG VZO is currently generating about -0.14 per unit of risk. If you would invest  445.00  in Porsche Automobile Holding on August 30, 2024 and sell it today you would lose (95.00) from holding Porsche Automobile Holding or give up 21.35% of portfolio value over 90 days.

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

Porsche Automobile Holding  vs.  Volkswagen AG VZO

Porsche Automobile

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Porsche Automobile Holding has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Stock's technical indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Porsche Automobile and Volkswagen

The main advantage of trading using opposite Porsche Automobile and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Porsche Automobile 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 Porsche Automobile Holding 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.