Correlation Between Volkswagen and Community Financial

Can any of the company-specific risk be diversified away by investing in both Volkswagen and Community Financial 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 Community Financial 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 Community Financial Corp, you can compare the effects of market volatilities on Volkswagen and Community Financial 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 Community Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Community Financial.

Diversification Opportunities for Volkswagen and Community Financial

0.77

Correlation Coefficient

Volkswagen  Community Financial

Poor diversification

The 3 months correlation between Volkswagen and Community is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Community Financial Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Community Financial Corp 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 Community Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Community Financial Corp has no effect on the direction of Volkswagen i.e., Volkswagen and Community Financial go up and down completely randomly.

Pair Corralation between Volkswagen and Community Financial

Assuming the 90 days horizon Volkswagen AG VZO is expected to generate 1.23 times more return on investment than Community Financial. However, Volkswagen is 1.23 times more volatile than Community Financial Corp. It trades about -0.01 of its potential returns per unit of risk. Community Financial Corp is currently generating about -0.14 per unit of risk. If you would invest  11,829  in Volkswagen AG VZO on September 30, 2024 and sell it today you would lose (2,589) from holding Volkswagen AG VZO or give up 21.89% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	24.54%
Values	Daily Returns

Volkswagen AG VZO  vs.  Community Financial Corp

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 latest unfluctuating performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Community Financial Corp

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Community Financial Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Community Financial is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Volkswagen and Community Financial

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

The idea behind Volkswagen AG VZO and Community Financial Corp 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.

Check out your portfolio center.

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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.