Correlation Between Volkswagen and Mercedes Benz

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

Diversification Opportunities for Volkswagen and Mercedes Benz

0.88

Correlation Coefficient

Volkswagen  Mercedes Benz

Very poor diversification

The 3 months correlation between Volkswagen and Mercedes is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Pref and Mercedes Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes Benz Group 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 Mercedes Benz. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes Benz Group has no effect on the direction of Volkswagen i.e., Volkswagen and Mercedes Benz go up and down completely randomly.

Pair Corralation between Volkswagen and Mercedes Benz

Assuming the 90 days horizon Volkswagen AG Pref is expected to generate 1.01 times more return on investment than Mercedes Benz. However, Volkswagen is 1.01 times more volatile than Mercedes Benz Group AG. It trades about 0.27 of its potential returns per unit of risk. Mercedes Benz Group AG is currently generating about 0.15 per unit of risk. If you would invest  849.00  in Volkswagen AG Pref on November 28, 2024 and sell it today you would earn a total of  255.00  from holding Volkswagen AG Pref or generate 30.04% return on investment over 90 days.

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

Volkswagen AG Pref  vs.  Mercedes Benz Group AG

Volkswagen AG Pref

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG Pref are ranked lower than 21 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Volkswagen showed solid returns over the last few months and may actually be approaching a breakup point.

Mercedes Benz Group

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mercedes Benz Group AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Mercedes Benz reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Mercedes Benz

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

The idea behind Volkswagen AG Pref and Mercedes Benz Group AG 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 Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.