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 Pref, 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

0.88

Correlation Coefficient

Porsche Automobile  Volkswagen

Very poor diversification

The 3 months correlation between Porsche and Volkswagen is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Porsche Automobile Holding and Volkswagen AG Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG Pref 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 Pref 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 is expected to generate 3.36 times less return on investment than Volkswagen. But when comparing it to its historical volatility, Porsche Automobile Holding is 1.2 times less risky than Volkswagen. It trades about 0.06 of its potential returns per unit of risk. Volkswagen AG Pref is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  1,025  in Volkswagen AG Pref on November 28, 2024 and sell it today you would earn a total of  79.00  from holding Volkswagen AG Pref or generate 7.71% return on investment over 90 days.

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

Porsche Automobile Holding  vs.  Volkswagen AG Pref

Porsche Automobile

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Porsche Automobile Holding are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical indicators, Porsche Automobile may actually be approaching a critical reversion point that can send shares even higher in March 2025.

Volkswagen AG Pref

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG Pref are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Volkswagen showed solid returns over the last few months and may actually be approaching a breakup point.

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 Pref 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .