Correlation Between Volkswagen and PSB Holdings

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

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

Diversification Opportunities for Volkswagen and PSB Holdings

-0.79

Correlation Coefficient

Volkswagen  PSB Holdings

Pay attention - limited upside

The 3 months correlation between Volkswagen and PSB is -0.79. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and PSB Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PSB Holdings 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 VZO are associated (or correlated) with PSB Holdings. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PSB Holdings has no effect on the direction of Volkswagen i.e., Volkswagen and PSB Holdings go up and down completely randomly.

Pair Corralation between Volkswagen and PSB Holdings

Assuming the 90 days horizon Volkswagen AG VZO is expected to generate 1.99 times more return on investment than PSB Holdings. However, Volkswagen is 1.99 times more volatile than PSB Holdings. It trades about 0.24 of its potential returns per unit of risk. PSB Holdings is currently generating about -0.3 per unit of risk. If you would invest  8,475  in Volkswagen AG VZO on September 23, 2024 and sell it today you would earn a total of  825.00  from holding Volkswagen AG VZO or generate 9.73% return on investment over 90 days.

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

Volkswagen AG VZO  vs.  PSB Holdings

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Volkswagen is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

PSB Holdings

Risk-Adjusted Performance

7 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in PSB Holdings are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, PSB Holdings is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Volkswagen and PSB Holdings

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

The idea behind Volkswagen AG VZO and PSB Holdings 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.