Correlation Between Volkswagen and Zimmer Biomet

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

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

Diversification Opportunities for Volkswagen and Zimmer Biomet

-0.2

Correlation Coefficient

Volkswagen  Zimmer Biomet

Good diversification

The 3 months correlation between Volkswagen and Zimmer is -0.2. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Zimmer Biomet Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Zimmer Biomet Holdings 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 Zimmer Biomet. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Zimmer Biomet Holdings has no effect on the direction of Volkswagen i.e., Volkswagen and Zimmer Biomet go up and down completely randomly.

Pair Corralation between Volkswagen and Zimmer Biomet

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 0.97 times more return on investment than Zimmer Biomet. However, Volkswagen AG is 1.04 times less risky than Zimmer Biomet. It trades about 0.15 of its potential returns per unit of risk. Zimmer Biomet Holdings is currently generating about 0.01 per unit of risk. If you would invest  8,850  in Volkswagen AG on December 24, 2024 and sell it today you would earn a total of  1,320  from holding Volkswagen AG or generate 14.92% return on investment over 90 days.

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

Volkswagen AG  vs.  Zimmer Biomet Holdings

Volkswagen AG

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Volkswagen reported solid returns over the last few months and may actually be approaching a breakup point.

Zimmer Biomet Holdings

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Zimmer Biomet Holdings are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Zimmer Biomet is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Volkswagen and Zimmer Biomet

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

The idea behind Volkswagen AG and Zimmer Biomet Holdings 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 Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.