Correlation Between Volkswagen and WPP PLC

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

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

Diversification Opportunities for Volkswagen and WPP PLC

-0.75

Correlation Coefficient

Volkswagen  WPP PLC

Pay attention - limited upside

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

Pair Corralation between Volkswagen and WPP PLC

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the WPP PLC. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG VZO is 1.05 times less risky than WPP PLC. The stock trades about -0.02 of its potential returns per unit of risk. The WPP PLC ADR is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,245  in WPP PLC ADR on September 24, 2024 and sell it today you would earn a total of  755.00  from holding WPP PLC ADR or generate 17.79% return on investment over 90 days.

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

Volkswagen AG VZO  vs.  WPP PLC ADR

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Volkswagen is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

WPP PLC ADR

Risk-Adjusted Performance

9 of 100

OK

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

Pair Trading with Volkswagen and WPP PLC

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

The idea behind Volkswagen AG VZO and WPP PLC ADR 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.