Correlation Between VOLKSWAGEN and Geely Automobile

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

By analyzing existing cross correlation between VOLKSWAGEN AG VZ and Geely Automobile Holdings, you can compare the effects of market volatilities on VOLKSWAGEN and Geely Automobile 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 Geely Automobile. Check out your portfolio center. Please also check ongoing floating volatility patterns of VOLKSWAGEN and Geely Automobile.

Diversification Opportunities for VOLKSWAGEN and Geely Automobile

-0.24

Correlation Coefficient

VOLKSWAGEN  Geely Automobile

Very good diversification

The 3 months correlation between VOLKSWAGEN and Geely is -0.24. Overlapping area represents the amount of risk that can be diversified away by holding VOLKSWAGEN AG VZ and Geely Automobile Holdings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Geely Automobile Holdings 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 VZ are associated (or correlated) with Geely Automobile. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Geely Automobile Holdings has no effect on the direction of VOLKSWAGEN i.e., VOLKSWAGEN and Geely Automobile go up and down completely randomly.

Pair Corralation between VOLKSWAGEN and Geely Automobile

Assuming the 90 days trading horizon VOLKSWAGEN AG VZ is expected to generate 0.55 times more return on investment than Geely Automobile. However, VOLKSWAGEN AG VZ is 1.82 times less risky than Geely Automobile. It trades about 0.05 of its potential returns per unit of risk. Geely Automobile Holdings is currently generating about 0.02 per unit of risk. If you would invest  835.00  in VOLKSWAGEN AG VZ on October 9, 2024 and sell it today you would earn a total of  20.00  from holding VOLKSWAGEN AG VZ or generate 2.4% return on investment over 90 days.

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

VOLKSWAGEN AG VZ  vs.  Geely Automobile Holdings

VOLKSWAGEN AG VZ

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VOLKSWAGEN AG VZ has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, VOLKSWAGEN is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Geely Automobile Holdings

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Geely Automobile Holdings are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Geely Automobile reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VOLKSWAGEN and Geely Automobile

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

The idea behind VOLKSWAGEN AG VZ and Geely Automobile Holdings 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.