Correlation Between Volkswagen and Indra Sistemas

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

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

Diversification Opportunities for Volkswagen and Indra Sistemas

0.71

Correlation Coefficient

Volkswagen  Indra Sistemas

Poor diversification

The 3 months correlation between Volkswagen and Indra is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Indra Sistemas SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Indra Sistemas SA and Volkswagen 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 Volkswagen AG are associated (or correlated) with Indra Sistemas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Indra Sistemas SA has no effect on the direction of Volkswagen i.e., Volkswagen and Indra Sistemas go up and down completely randomly.

Pair Corralation between Volkswagen and Indra Sistemas

Assuming the 90 days horizon Volkswagen AG is expected to under-perform the Indra Sistemas. In addition to that, Volkswagen is 1.52 times more volatile than Indra Sistemas SA. It trades about -0.09 of its total potential returns per unit of risk. Indra Sistemas SA is currently generating about -0.09 per unit of volatility. If you would invest  994.00  in Indra Sistemas SA on September 27, 2024 and sell it today you would lose (141.00) from holding Indra Sistemas SA or give up 14.19% of portfolio value over 90 days.

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

Volkswagen AG  vs.  Indra Sistemas SA

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Indra Sistemas SA

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Indra Sistemas SA has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

Pair Trading with Volkswagen and Indra Sistemas

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

The idea behind Volkswagen AG and Indra Sistemas SA 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.