Correlation Between VOLKSWAGEN ADR and Volkswagen

Can any of the company-specific risk be diversified away by investing in both VOLKSWAGEN ADR and Volkswagen 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 ADR and Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between VOLKSWAGEN ADR 110ON and Volkswagen AG VZO, you can compare the effects of market volatilities on VOLKSWAGEN ADR and Volkswagen 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 ADR with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of VOLKSWAGEN ADR and Volkswagen.

Diversification Opportunities for VOLKSWAGEN ADR and Volkswagen

0.95

Correlation Coefficient

VOLKSWAGEN ADR  Volkswagen

Almost no diversification

The 3 months correlation between VOLKSWAGEN and Volkswagen is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding VOLKSWAGEN ADR 110ON and Volkswagen AG VZO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG VZO and VOLKSWAGEN ADR 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 ADR 110ON are associated (or correlated) with Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG VZO has no effect on the direction of VOLKSWAGEN ADR i.e., VOLKSWAGEN ADR and Volkswagen go up and down completely randomly.

Pair Corralation between VOLKSWAGEN ADR and Volkswagen

Assuming the 90 days trading horizon VOLKSWAGEN ADR 110ON is expected to under-perform the Volkswagen. In addition to that, VOLKSWAGEN ADR is 1.55 times more volatile than Volkswagen AG VZO. It trades about -0.08 of its total potential returns per unit of risk. Volkswagen AG VZO is currently generating about -0.09 per unit of volatility. If you would invest  9,502  in Volkswagen AG VZO on September 26, 2024 and sell it today you would lose (798.00) from holding Volkswagen AG VZO or give up 8.4% of portfolio value over 90 days.

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

VOLKSWAGEN ADR 110ON  vs.  Volkswagen AG VZO

VOLKSWAGEN ADR 110ON

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VOLKSWAGEN ADR 110ON has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Stock's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the company stockholders.

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 latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with VOLKSWAGEN ADR and Volkswagen

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

The idea behind VOLKSWAGEN ADR 110ON and Volkswagen AG VZO 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.