Correlation Between ATT and Volkswagen

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

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

Diversification Opportunities for ATT and Volkswagen

0.86

Correlation Coefficient

ATT  Volkswagen

Very poor diversification

The 3 months correlation between ATT and Volkswagen is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding ATT Inc 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 ATT 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 ATT Inc 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 ATT i.e., ATT and Volkswagen go up and down completely randomly.

Pair Corralation between ATT and Volkswagen

Taking into account the 90-day investment horizon ATT Inc is expected to generate 0.78 times more return on investment than Volkswagen. However, ATT Inc is 1.29 times less risky than Volkswagen. It trades about 0.24 of its potential returns per unit of risk. Volkswagen AG 110 is currently generating about 0.13 per unit of risk. If you would invest  2,257  in ATT Inc on December 27, 2024 and sell it today you would earn a total of  563.00  from holding ATT Inc or generate 24.94% return on investment over 90 days.

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

ATT Inc  vs.  Volkswagen AG 110

ATT Inc

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ATT Inc are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, ATT unveiled solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG 110

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG 110 are ranked lower than 10 (%) 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 ATT and Volkswagen

The main advantage of trading using opposite ATT and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ATT 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 ATT Inc 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.