Correlation Between Volkswagen and Hyundai

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

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

Diversification Opportunities for Volkswagen and Hyundai

0.75

Correlation Coefficient

Volkswagen  Hyundai

Poor diversification

The 3 months correlation between Volkswagen and Hyundai is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Hyundai Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor 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 Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of Volkswagen i.e., Volkswagen and Hyundai go up and down completely randomly.

Pair Corralation between Volkswagen and Hyundai

Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Hyundai. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.36 times less risky than Hyundai. The stock trades about -0.05 of its potential returns per unit of risk. The Hyundai Motor is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,895  in Hyundai Motor on September 29, 2024 and sell it today you would earn a total of  1,955  from holding Hyundai Motor or generate 67.53% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.38%
Values	Daily Returns

Volkswagen AG  vs.  Hyundai Motor

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 stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Hyundai Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hyundai Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fragile performance in the last few months, the Stock's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the company stockholders.

Pair Trading with Volkswagen and Hyundai

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

The idea behind Volkswagen AG and Hyundai Motor 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.