Correlation Between WIG 30 and Volkswagen

Can any of the company-specific risk be diversified away by investing in both WIG 30 and Volkswagen 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 WIG 30 and Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between WIG 30 and Volkswagen AG Non Vtg, you can compare the effects of market volatilities on WIG 30 and Volkswagen 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 WIG 30 with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of WIG 30 and Volkswagen.

Diversification Opportunities for WIG 30 and Volkswagen

0.4

Correlation Coefficient

WIG 30  Volkswagen

Very weak diversification

The 3 months correlation between WIG and Volkswagen is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding WIG 30 and Volkswagen AG Non Vtg in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG Non and WIG 30 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 WIG 30 are associated (or correlated) with Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG Non has no effect on the direction of WIG 30 i.e., WIG 30 and Volkswagen go up and down completely randomly.

Pair Corralation between WIG 30 and Volkswagen

Assuming the 90 days trading horizon WIG 30 is expected to generate 0.7 times more return on investment than Volkswagen. However, WIG 30 is 1.44 times less risky than Volkswagen. It trades about -0.05 of its potential returns per unit of risk. Volkswagen AG Non Vtg is currently generating about -0.11 per unit of risk. If you would invest  294,041  in WIG 30 on September 29, 2024 and sell it today you would lose (11,931) from holding WIG 30 or give up 4.06% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

WIG 30  vs.  Volkswagen AG Non Vtg

Pair Trading with WIG 30 and Volkswagen

The main advantage of trading using opposite WIG 30 and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WIG 30 position performs unexpectedly, Volkswagen 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 Volkswagen will offset losses from the drop in Volkswagen's long position.

The idea behind WIG 30 and Volkswagen AG Non Vtg 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.