Correlation Between Volkswagen and Dentsu

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

Diversification Opportunities for Volkswagen and Dentsu

0.64

Correlation Coefficient

Volkswagen  Dentsu

Poor diversification

The 3 months correlation between Volkswagen and Dentsu is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Dentsu Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dentsu Group 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 Dentsu. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dentsu Group has no effect on the direction of Volkswagen i.e., Volkswagen and Dentsu go up and down completely randomly.

Pair Corralation between Volkswagen and Dentsu

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the Dentsu. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG VZO is 1.4 times less risky than Dentsu. The stock trades about -0.02 of its potential returns per unit of risk. The Dentsu Group is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,860  in Dentsu Group on September 24, 2024 and sell it today you would lose (480.00) from holding Dentsu Group or give up 16.78% of portfolio value over 90 days.

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

Volkswagen AG VZO  vs.  Dentsu Group

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.

Dentsu Group

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dentsu Group has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

Pair Trading with Volkswagen and Dentsu

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

The idea behind Volkswagen AG VZO and Dentsu Group 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.