Correlation Between Volkswagen and KRISPY KREME

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

By analyzing existing cross correlation between Volkswagen AG and KRISPY KREME DL 01, you can compare the effects of market volatilities on Volkswagen and KRISPY KREME 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 KRISPY KREME. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and KRISPY KREME.

Diversification Opportunities for Volkswagen and KRISPY KREME

-0.2

Correlation Coefficient

Volkswagen  KRISPY KREME

Good diversification

The 3 months correlation between Volkswagen and KRISPY is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and KRISPY KREME DL 01 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KRISPY KREME DL 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 KRISPY KREME. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KRISPY KREME DL has no effect on the direction of Volkswagen i.e., Volkswagen and KRISPY KREME go up and down completely randomly.

Pair Corralation between Volkswagen and KRISPY KREME

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 1.04 times more return on investment than KRISPY KREME. However, Volkswagen is 1.04 times more volatile than KRISPY KREME DL 01. It trades about 0.18 of its potential returns per unit of risk. KRISPY KREME DL 01 is currently generating about -0.24 per unit of risk. If you would invest  8,460  in Volkswagen AG on October 6, 2024 and sell it today you would earn a total of  425.00  from holding Volkswagen AG or generate 5.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	94.44%
Values	Daily Returns

Volkswagen AG  vs.  KRISPY KREME DL 01

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.

KRISPY KREME DL

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KRISPY KREME DL 01 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, KRISPY KREME is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Volkswagen and KRISPY KREME

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

The idea behind Volkswagen AG and KRISPY KREME DL 01 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.