Correlation Between Volkswagen and Companhia

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

Diversification Opportunities for Volkswagen and Companhia

-0.36

Correlation Coefficient

Volkswagen  Companhia

Very good diversification

The 3 months correlation between Volkswagen and Companhia is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Companhia De Saneamento in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Companhia De Saneamento 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 Companhia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Companhia De Saneamento has no effect on the direction of Volkswagen i.e., Volkswagen and Companhia go up and down completely randomly.

Pair Corralation between Volkswagen and Companhia

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to generate 0.68 times more return on investment than Companhia. However, Volkswagen AG VZO is 1.46 times less risky than Companhia. It trades about -0.03 of its potential returns per unit of risk. Companhia De Saneamento is currently generating about -0.03 per unit of risk. If you would invest  9,248  in Volkswagen AG VZO on October 8, 2024 and sell it today you would lose (300.00) from holding Volkswagen AG VZO or give up 3.24% of portfolio value over 90 days.

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

Volkswagen AG VZO  vs.  Companhia De Saneamento

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 newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Companhia De Saneamento

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Companhia De Saneamento has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Companhia is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Volkswagen and Companhia

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

The idea behind Volkswagen AG VZO and Companhia De Saneamento 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.