Correlation Between Volkswagen and Urban Outfitters

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

Diversification Opportunities for Volkswagen and Urban Outfitters

0.09

Correlation Coefficient

Volkswagen  Urban Outfitters

Significant diversification

The 3 months correlation between Volkswagen and Urban is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG VZO and Urban Outfitters in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Urban Outfitters 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 Urban Outfitters. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Urban Outfitters has no effect on the direction of Volkswagen i.e., Volkswagen and Urban Outfitters go up and down completely randomly.

Pair Corralation between Volkswagen and Urban Outfitters

Assuming the 90 days trading horizon Volkswagen AG VZO is expected to generate 0.58 times more return on investment than Urban Outfitters. However, Volkswagen AG VZO is 1.73 times less risky than Urban Outfitters. It trades about 0.47 of its potential returns per unit of risk. Urban Outfitters is currently generating about 0.01 per unit of risk. If you would invest  8,704  in Volkswagen AG VZO on October 23, 2024 and sell it today you would earn a total of  796.00  from holding Volkswagen AG VZO or generate 9.15% return on investment over 90 days.

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

Volkswagen AG VZO  vs.  Urban Outfitters

Volkswagen AG VZO

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG VZO are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Volkswagen is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Urban Outfitters

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Urban Outfitters are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Urban Outfitters reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Urban Outfitters

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

The idea behind Volkswagen AG VZO and Urban Outfitters 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.