Correlation Between Volkswagen and Trans Global

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

Diversification Opportunities for Volkswagen and Trans Global

0.62

Correlation Coefficient

Volkswagen  Trans Global

Poor diversification

The 3 months correlation between Volkswagen and Trans is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Pref and Trans Global Grp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trans Global Grp 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 Trans Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trans Global Grp has no effect on the direction of Volkswagen i.e., Volkswagen and Trans Global go up and down completely randomly.

Pair Corralation between Volkswagen and Trans Global

Assuming the 90 days horizon Volkswagen AG Pref is expected to under-perform the Trans Global. But the pink sheet apears to be less risky and, when comparing its historical volatility, Volkswagen AG Pref is 17.73 times less risky than Trans Global. The pink sheet trades about -0.18 of its potential returns per unit of risk. The Trans Global Grp is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  0.02  in Trans Global Grp on September 4, 2024 and sell it today you would lose (0.01) from holding Trans Global Grp or give up 50.0% of portfolio value over 90 days.

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

Volkswagen AG Pref  vs.  Trans Global Grp

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 fragile performance in the last few months, the Stock's basic 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.

Trans Global Grp

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Trans Global Grp are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting technical and fundamental indicators, Trans Global demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Volkswagen and Trans Global

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

The idea behind Volkswagen AG Pref and Trans Global Grp 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.