Correlation Between Volkswagen and Penske Automotive

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

Diversification Opportunities for Volkswagen and Penske Automotive

0.02

Correlation Coefficient

Volkswagen  Penske Automotive

Significant diversification

The 3 months correlation between Volkswagen and Penske is 0.02. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Penske Automotive Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Penske Automotive 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 Penske Automotive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Penske Automotive has no effect on the direction of Volkswagen i.e., Volkswagen and Penske Automotive go up and down completely randomly.

Pair Corralation between Volkswagen and Penske Automotive

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to generate 1.05 times more return on investment than Penske Automotive. However, Volkswagen is 1.05 times more volatile than Penske Automotive Group. It trades about 0.13 of its potential returns per unit of risk. Penske Automotive Group is currently generating about -0.06 per unit of risk. If you would invest  8,866  in Volkswagen AG VZO on December 26, 2024 and sell it today you would earn a total of  1,374  from holding Volkswagen AG VZO or generate 15.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Volkswagen AG VZO  vs.  Penske Automotive Group

Volkswagen AG VZO

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG VZO are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Volkswagen exhibited solid returns over the last few months and may actually be approaching a breakup point.

Penske Automotive

Risk-Adjusted Performance

Very Weak

Over the last 90 days Penske Automotive Group has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain stable and the newest uproar on Wall Street may also be a sign of mid-term gains for the firm private investors.

Pair Trading with Volkswagen and Penske Automotive

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

The idea behind Volkswagen AG VZO and Penske Automotive 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.