Correlation Between Volkswagen and Volcon

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

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

Diversification Opportunities for Volkswagen and Volcon

0.8

Correlation Coefficient

Volkswagen  Volcon

Very poor diversification

The 3 months correlation between Volkswagen and Volcon is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Volcon Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volcon Inc 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 Volcon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volcon Inc has no effect on the direction of Volkswagen i.e., Volkswagen and Volcon go up and down completely randomly.

Pair Corralation between Volkswagen and Volcon

Assuming the 90 days horizon Volkswagen AG is expected to generate 0.28 times more return on investment than Volcon. However, Volkswagen AG is 3.6 times less risky than Volcon. It trades about -0.19 of its potential returns per unit of risk. Volcon Inc is currently generating about -0.16 per unit of risk. If you would invest  11,289  in Volkswagen AG on September 3, 2024 and sell it today you would lose (2,589) from holding Volkswagen AG or give up 22.93% of portfolio value over 90 days.

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

Volkswagen AG  vs.  Volcon Inc

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.

Volcon Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volcon Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Volkswagen and Volcon

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

The idea behind Volkswagen AG and Volcon Inc 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 CEOs Directory module to screen CEOs from public companies around the world.