Correlation Between Volkswagen and Takeda Pharmaceutical

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

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

Diversification Opportunities for Volkswagen and Takeda Pharmaceutical

0.78

Correlation Coefficient

Volkswagen  Takeda Pharmaceutical

Poor diversification

The 3 months correlation between Volkswagen and Takeda is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Takeda Pharmaceutical in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Takeda Pharmaceutical 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 Takeda Pharmaceutical. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Takeda Pharmaceutical has no effect on the direction of Volkswagen i.e., Volkswagen and Takeda Pharmaceutical go up and down completely randomly.

Pair Corralation between Volkswagen and Takeda Pharmaceutical

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 1.51 times more return on investment than Takeda Pharmaceutical. However, Volkswagen is 1.51 times more volatile than Takeda Pharmaceutical. It trades about 0.08 of its potential returns per unit of risk. Takeda Pharmaceutical is currently generating about 0.12 per unit of risk. If you would invest  9,075  in Volkswagen AG on December 29, 2024 and sell it today you would earn a total of  885.00  from holding Volkswagen AG or generate 9.75% return on investment over 90 days.

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

Volkswagen AG  vs.  Takeda Pharmaceutical

Volkswagen AG

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Volkswagen may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Takeda Pharmaceutical

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Takeda Pharmaceutical are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, Takeda Pharmaceutical may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Volkswagen and Takeda Pharmaceutical

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

The idea behind Volkswagen AG and Takeda Pharmaceutical 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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.