Correlation Between Varta AG and Adidas AG

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

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

Diversification Opportunities for Varta AG and Adidas AG

-0.39

Correlation Coefficient

Varta AG  Adidas AG

Very good diversification

The 3 months correlation between Varta and Adidas is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Varta AG and adidas AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on adidas AG and Varta AG 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 Varta AG are associated (or correlated) with Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of adidas AG has no effect on the direction of Varta AG i.e., Varta AG and Adidas AG go up and down completely randomly.

Pair Corralation between Varta AG and Adidas AG

Assuming the 90 days trading horizon Varta AG is expected to under-perform the Adidas AG. In addition to that, Varta AG is 4.4 times more volatile than adidas AG. It trades about -0.02 of its total potential returns per unit of risk. adidas AG is currently generating about 0.06 per unit of volatility. If you would invest  14,769  in adidas AG on October 14, 2024 and sell it today you would earn a total of  9,611  from holding adidas AG or generate 65.08% return on investment over 90 days.

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

Varta AG  vs.  adidas AG

Varta AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Varta AG 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 basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

adidas AG

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in adidas AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Adidas AG is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Varta AG and Adidas AG

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

The idea behind Varta AG and adidas AG 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.