Correlation Between Ferrari NV and Porsche Automobil

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

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

Diversification Opportunities for Ferrari NV and Porsche Automobil

0.25

Correlation Coefficient

Ferrari NV  Porsche Automobil

Modest diversification

The 3 months correlation between Ferrari and Porsche is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and Porsche Automobil Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Porsche Automobil Holding and Ferrari NV 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 Ferrari NV are associated (or correlated) with Porsche Automobil. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Porsche Automobil Holding has no effect on the direction of Ferrari NV i.e., Ferrari NV and Porsche Automobil go up and down completely randomly.

Pair Corralation between Ferrari NV and Porsche Automobil

Given the investment horizon of 90 days Ferrari NV is expected to generate 1.43 times less return on investment than Porsche Automobil. But when comparing it to its historical volatility, Ferrari NV is 1.18 times less risky than Porsche Automobil. It trades about 0.02 of its potential returns per unit of risk. Porsche Automobil Holding is currently generating about 0.02 of returns per unit of risk over similar time horizon. 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

Ferrari NV  vs.  Porsche Automobil Holding

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.

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.

Pair Trading with Ferrari NV and Porsche Automobil

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

The idea behind Ferrari NV and Porsche Automobil Holding 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.