Correlation Between Volkswagen and Broadwind

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

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

Diversification Opportunities for Volkswagen and Broadwind

0.63

Correlation Coefficient

Volkswagen  Broadwind

Poor diversification

The 3 months correlation between Volkswagen and Broadwind is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Broadwind in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Broadwind 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 Broadwind. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Broadwind has no effect on the direction of Volkswagen i.e., Volkswagen and Broadwind go up and down completely randomly.

Pair Corralation between Volkswagen and Broadwind

Assuming the 90 days trading horizon Volkswagen is expected to generate 3.56 times less return on investment than Broadwind. But when comparing it to its historical volatility, Volkswagen AG is 1.85 times less risky than Broadwind. It trades about 0.15 of its potential returns per unit of risk. Broadwind is currently generating about 0.3 of returns per unit of risk over similar time horizon. If you would invest  165.00  in Broadwind on October 5, 2024 and sell it today you would earn a total of  27.00  from holding Broadwind or generate 16.36% return on investment over 90 days.

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

Volkswagen AG  vs.  Broadwind

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. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Broadwind

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Volkswagen and Broadwind

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

The idea behind Volkswagen AG and Broadwind 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.