Correlation Between Volkswagen and AP Mller

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

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

Diversification Opportunities for Volkswagen and AP Mller

-0.81

Correlation Coefficient

Volkswagen  AP Mller

Pay attention - limited upside

The 3 months correlation between Volkswagen and DP4A is -0.81. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and AP Mller in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AP Mller 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 AP Mller. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AP Mller has no effect on the direction of Volkswagen i.e., Volkswagen and AP Mller go up and down completely randomly.

Pair Corralation between Volkswagen and AP Mller

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the AP Mller. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 2.29 times less risky than AP Mller. The stock trades about -0.05 of its potential returns per unit of risk. The AP Mller is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  112,997  in AP Mller on October 4, 2024 and sell it today you would earn a total of  48,103  from holding AP Mller or generate 42.57% return on investment over 90 days.

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

Volkswagen AG  vs.  AP Mller

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.

AP Mller

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in AP Mller are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, AP Mller reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and AP Mller

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

The idea behind Volkswagen AG and AP Mller 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.