Correlation Between Volkswagen and Strategic Education

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

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

Diversification Opportunities for Volkswagen and Strategic Education

-0.8

Correlation Coefficient

Volkswagen  Strategic Education

Pay attention - limited upside

The 3 months correlation between Volkswagen and Strategic is -0.8. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Strategic Education in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Strategic Education 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 Strategic Education. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Strategic Education has no effect on the direction of Volkswagen i.e., Volkswagen and Strategic Education go up and down completely randomly.

Pair Corralation between Volkswagen and Strategic Education

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Strategic Education. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.72 times less risky than Strategic Education. The stock trades about -0.11 of its potential returns per unit of risk. The Strategic Education is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  7,949  in Strategic Education on October 5, 2024 and sell it today you would earn a total of  851.00  from holding Strategic Education or generate 10.71% 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.  Strategic Education

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.

Strategic Education

Risk-Adjusted Performance

0 of 100

Modest

Over the last 90 days Strategic Education has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly uncertain basic indicators, Strategic Education reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Strategic Education

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

The idea behind Volkswagen AG and Strategic Education 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.