Correlation Between Ferrari NV and Volkswagen

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

By analyzing existing cross correlation between Ferrari NV and Volkswagen AG 110, you can compare the effects of market volatilities on Ferrari NV 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 Ferrari NV with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ferrari NV and Volkswagen.

Diversification Opportunities for Ferrari NV and Volkswagen

0.6

Correlation Coefficient

Ferrari NV  Volkswagen

Poor diversification

The 3 months correlation between Ferrari and Volkswagen is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding Ferrari NV and Volkswagen AG 110 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 110 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 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 110 has no effect on the direction of Ferrari NV i.e., Ferrari NV and Volkswagen go up and down completely randomly.

Pair Corralation between Ferrari NV and Volkswagen

Given the investment horizon of 90 days Ferrari NV is expected to generate 1.77 times less return on investment than Volkswagen. In addition to that, Ferrari NV is 1.01 times more volatile than Volkswagen AG 110. It trades about 0.15 of its total potential returns per unit of risk. Volkswagen AG 110 is currently generating about 0.27 per unit of volatility. If you would invest  875.00  in Volkswagen AG 110 on November 28, 2024 and sell it today you would earn a total of  252.00  from holding Volkswagen AG 110 or generate 28.8% return on investment over 90 days.

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

Ferrari NV  vs.  Volkswagen AG 110

Ferrari NV

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Ferrari NV are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental indicators, Ferrari NV exhibited solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG 110

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG 110 are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak technical and fundamental indicators, Volkswagen showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ferrari NV and Volkswagen

The main advantage of trading using opposite Ferrari NV and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ferrari NV 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 Ferrari NV and Volkswagen AG 110 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.