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 Pref 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

-0.39

Correlation Coefficient

Volkswagen  Geely Automobile

Very good diversification

The 3 months correlation between Volkswagen and Geely is -0.39. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Pref 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 Pref 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 horizon Volkswagen AG Pref is expected to under-perform the Geely Automobile. But the pink sheet apears to be less risky and, when comparing its historical volatility, Volkswagen AG Pref is 1.55 times less risky than Geely Automobile. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Geely Automobile Holdings is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  2,965  in Geely Automobile Holdings on October 11, 2024 and sell it today you would earn a total of  628.00  from holding Geely Automobile Holdings or generate 21.18% return on investment over 90 days.

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

Volkswagen AG Pref  vs.  Geely Automobile Holdings

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.

Geely Automobile Holdings

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Geely Automobile Holdings are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile basic indicators, Geely Automobile may actually be approaching a critical reversion point that can send shares even higher in February 2025.

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 Pref 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.