Correlation Between Volkswagen and Spirent Communications

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

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

Diversification Opportunities for Volkswagen and Spirent Communications

-0.23

Correlation Coefficient

Volkswagen  Spirent Communications

Very good diversification

The 3 months correlation between Volkswagen and Spirent is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications 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 Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of Volkswagen i.e., Volkswagen and Spirent Communications go up and down completely randomly.

Pair Corralation between Volkswagen and Spirent Communications

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 1.21 times more return on investment than Spirent Communications. However, Volkswagen is 1.21 times more volatile than Spirent Communications plc. It trades about 0.18 of its potential returns per unit of risk. Spirent Communications plc is currently generating about -0.03 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	100.0%
Values	Daily Returns

Volkswagen AG  vs.  Spirent Communications 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.

Spirent Communications

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Spirent Communications plc are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Spirent Communications may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Volkswagen and Spirent Communications

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

The idea behind Volkswagen AG and Spirent Communications 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.

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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.