Correlation Between Volkswagen and Meta Platforms

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

Diversification Opportunities for Volkswagen and Meta Platforms

-0.51

Correlation Coefficient

Volkswagen  Meta Platforms

Excellent diversification

The 3 months correlation between Volkswagen and Meta is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Meta Platforms in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Meta Platforms 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 Meta Platforms. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Meta Platforms has no effect on the direction of Volkswagen i.e., Volkswagen and Meta Platforms go up and down completely randomly.

Pair Corralation between Volkswagen and Meta Platforms

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the Meta Platforms. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG VZO is 1.02 times less risky than Meta Platforms. The stock trades about -0.17 of its potential returns per unit of risk. The Meta Platforms is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  46,581  in Meta Platforms on September 3, 2024 and sell it today you would earn a total of  8,119  from holding Meta Platforms or generate 17.43% 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.  Meta Platforms

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 fragile performance in the last few months, the Stock's basic indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the firm shareholders.

Meta Platforms

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Meta Platforms are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Meta Platforms exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Meta Platforms

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

The idea behind Volkswagen AG VZO and Meta Platforms 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.