Correlation Between Volkswagen and Schlumberger

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

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

Diversification Opportunities for Volkswagen and Schlumberger

-0.45

Correlation Coefficient

Volkswagen  Schlumberger

Very good diversification

The 3 months correlation between Volkswagen and Schlumberger is -0.45. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Schlumberger Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schlumberger Limited 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 Schlumberger. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schlumberger Limited has no effect on the direction of Volkswagen i.e., Volkswagen and Schlumberger go up and down completely randomly.

Pair Corralation between Volkswagen and Schlumberger

Assuming the 90 days trading horizon Volkswagen is expected to generate 3.25 times less return on investment than Schlumberger. But when comparing it to its historical volatility, Volkswagen AG is 1.54 times less risky than Schlumberger. It trades about 0.01 of its potential returns per unit of risk. Schlumberger Limited is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  3,914  in Schlumberger Limited on October 20, 2024 and sell it today you would earn a total of  51.00  from holding Schlumberger Limited or generate 1.3% return on investment over 90 days.

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

Volkswagen AG  vs.  Schlumberger Limited

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 rather sound basic indicators, Volkswagen is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Schlumberger Limited

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Schlumberger Limited are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Schlumberger 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 Schlumberger

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

The idea behind Volkswagen AG and Schlumberger Limited 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.