Correlation Between Volkswagen and China Teletech

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

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

Diversification Opportunities for Volkswagen and China Teletech

-0.69

Correlation Coefficient

Volkswagen  China Teletech

Excellent diversification

The 3 months correlation between Volkswagen and China is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Pref and China Teletech Holding in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Teletech Holding 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 Pref are associated (or correlated) with China Teletech. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Teletech Holding has no effect on the direction of Volkswagen i.e., Volkswagen and China Teletech go up and down completely randomly.

Pair Corralation between Volkswagen and China Teletech

Assuming the 90 days horizon Volkswagen AG Pref is expected to under-perform the China Teletech. But the pink sheet apears to be less risky and, when comparing its historical volatility, Volkswagen AG Pref is 34.13 times less risky than China Teletech. The pink sheet trades about -0.01 of its potential returns per unit of risk. The China Teletech Holding is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  0.20  in China Teletech Holding on September 17, 2024 and sell it today you would lose (0.12) from holding China Teletech Holding or give up 60.0% of portfolio value over 90 days.

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

Volkswagen AG Pref  vs.  China Teletech Holding

Volkswagen AG Pref

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG Pref has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Stock's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the company investors.

China Teletech Holding

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in China Teletech Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile fundamental indicators, China Teletech unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and China Teletech

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

The idea behind Volkswagen AG Pref and China Teletech Holding 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..