Correlation Between Volkswagen and Royal Mail

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

By analyzing existing cross correlation between Volkswagen AG 110 and Royal Mail Plc, you can compare the effects of market volatilities on Volkswagen and Royal Mail 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 Royal Mail. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Royal Mail.

Diversification Opportunities for Volkswagen and Royal Mail

-0.37

Correlation Coefficient

Volkswagen  Royal Mail

Very good diversification

The 3 months correlation between Volkswagen and Royal is -0.37. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG 110 and Royal Mail Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Royal Mail Plc 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 110 are associated (or correlated) with Royal Mail. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Royal Mail Plc has no effect on the direction of Volkswagen i.e., Volkswagen and Royal Mail go up and down completely randomly.

Pair Corralation between Volkswagen and Royal Mail

If you would invest  384.00  in Royal Mail Plc on September 3, 2024 and sell it today you would earn a total of  0.00  from holding Royal Mail Plc or generate 0.0% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	1.56%
Values	Daily Returns

Volkswagen AG 110  vs.  Royal Mail Plc

Volkswagen AG 110

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG 110 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's technical and fundamental indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the company investors.

Royal Mail Plc

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Volkswagen and Royal Mail

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

The idea behind Volkswagen AG 110 and Royal Mail Plc 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.