Correlation Between Volkswagen and ASX

Can any of the company-specific risk be diversified away by investing in both Volkswagen and ASX 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 ASX 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 ASX LTD UNSPONSADR, you can compare the effects of market volatilities on Volkswagen and ASX 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 ASX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and ASX.

Diversification Opportunities for Volkswagen and ASX

-0.56

Correlation Coefficient

Volkswagen  ASX

Excellent diversification

The 3 months correlation between Volkswagen and ASX is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and ASX LTD UNSPONSADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ASX LTD UNSPONSADR 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 ASX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ASX LTD UNSPONSADR has no effect on the direction of Volkswagen i.e., Volkswagen and ASX go up and down completely randomly.

Pair Corralation between Volkswagen and ASX

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the ASX. In addition to that, Volkswagen is 1.19 times more volatile than ASX LTD UNSPONSADR. It trades about -0.04 of its total potential returns per unit of risk. ASX LTD UNSPONSADR is currently generating about 0.1 per unit of volatility. If you would invest  3,780  in ASX LTD UNSPONSADR on September 14, 2024 and sell it today you would earn a total of  300.00  from holding ASX LTD UNSPONSADR or generate 7.94% return on investment over 90 days.

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

Volkswagen AG VZO  vs.  ASX LTD UNSPONSADR

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.

ASX LTD UNSPONSADR

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ASX LTD UNSPONSADR are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, ASX may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Volkswagen and ASX

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

The idea behind Volkswagen AG VZO and ASX LTD UNSPONSADR 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.