Correlation Between Volkswagen and TC Energy

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

Diversification Opportunities for Volkswagen and TC Energy

-0.5

Correlation Coefficient

Volkswagen  TC Energy

Very good diversification

The 3 months correlation between Volkswagen and TRS is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and TC Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on TC Energy 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 TC Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of TC Energy has no effect on the direction of Volkswagen i.e., Volkswagen and TC Energy go up and down completely randomly.

Pair Corralation between Volkswagen and TC Energy

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to under-perform the TC Energy. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG VZO is 1.2 times less risky than TC Energy. The stock trades about -0.07 of its potential returns per unit of risk. The TC Energy is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  3,989  in TC Energy on October 8, 2024 and sell it today you would earn a total of  622.00  from holding TC Energy or generate 15.59% 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.  TC Energy

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.

TC Energy

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TC Energy are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile basic indicators, TC Energy unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and TC Energy

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

The idea behind Volkswagen AG VZO and TC Energy 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.

Check out your portfolio center.

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 Economic Indicators module to top statistical indicators that provide insights into how an economy is performing.