Correlation Between Volkswagen and BP Plc

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

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

Diversification Opportunities for Volkswagen and BP Plc

0.41

Correlation Coefficient

Volkswagen  BP Plc

Very weak diversification

The 3 months correlation between Volkswagen and BSU is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and BP plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BP plc 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 BP Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BP plc has no effect on the direction of Volkswagen i.e., Volkswagen and BP Plc go up and down completely randomly.

Pair Corralation between Volkswagen and BP Plc

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the BP Plc. In addition to that, Volkswagen is 1.11 times more volatile than BP plc. It trades about -0.05 of its total potential returns per unit of risk. BP plc is currently generating about 0.0 per unit of volatility. If you would invest  2,959  in BP plc on October 7, 2024 and sell it today you would lose (59.00) from holding BP plc or give up 1.99% of portfolio value over 90 days.

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

Volkswagen AG  vs.  BP plc

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.

BP plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BP plc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BP Plc 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 BP Plc

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

The idea behind Volkswagen AG and BP plc 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.