Correlation Between Volkswagen and Great Wall

Can any of the company-specific risk be diversified away by investing in both Volkswagen and Great Wall 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 Great Wall 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 Great Wall Motor, you can compare the effects of market volatilities on Volkswagen and Great Wall 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 Great Wall. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Great Wall.

Diversification Opportunities for Volkswagen and Great Wall

0.54

Correlation Coefficient

Volkswagen  Great Wall

Very weak diversification

The 3 months correlation between Volkswagen and Great is 0.54. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Pref and Great Wall Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great Wall Motor 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 Great Wall. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great Wall Motor has no effect on the direction of Volkswagen i.e., Volkswagen and Great Wall go up and down completely randomly.

Pair Corralation between Volkswagen and Great Wall

Assuming the 90 days horizon Volkswagen AG Pref is expected to under-perform the Great Wall. But the pink sheet apears to be less risky and, when comparing its historical volatility, Volkswagen AG Pref is 2.34 times less risky than Great Wall. The pink sheet trades about -0.02 of its potential returns per unit of risk. The Great Wall Motor is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,299  in Great Wall Motor on October 11, 2024 and sell it today you would earn a total of  377.00  from holding Great Wall Motor or generate 29.02% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.35%
Values	Daily Returns

Volkswagen AG Pref  vs.  Great Wall Motor

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.

Great Wall Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Great Wall Motor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong essential indicators, Great Wall is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Volkswagen and Great Wall

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

The idea behind Volkswagen AG Pref and Great Wall Motor 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.