Correlation Between Volkswagen and JCDecaux

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

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

Diversification Opportunities for Volkswagen and JCDecaux

0.86

Correlation Coefficient

Volkswagen  JCDecaux

Very poor diversification

The 3 months correlation between Volkswagen and JCDecaux is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and JCDecaux SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JCDecaux SA 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 JCDecaux. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JCDecaux SA has no effect on the direction of Volkswagen i.e., Volkswagen and JCDecaux go up and down completely randomly.

Pair Corralation between Volkswagen and JCDecaux

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 0.65 times more return on investment than JCDecaux. However, Volkswagen AG is 1.53 times less risky than JCDecaux. It trades about -0.07 of its potential returns per unit of risk. JCDecaux SA is currently generating about -0.06 per unit of risk. If you would invest  10,600  in Volkswagen AG on October 13, 2024 and sell it today you would lose (1,530) from holding Volkswagen AG or give up 14.43% of portfolio value over 90 days.

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

Volkswagen AG  vs.  JCDecaux SA

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. Despite nearly stable basic indicators, Volkswagen is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

JCDecaux SA

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Volkswagen and JCDecaux

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

The idea behind Volkswagen AG and JCDecaux SA 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.