Correlation Between Mercedes-Benz Group and Volkswagen

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

By analyzing existing cross correlation between Mercedes Benz Group AG and Volkswagen AG 110, you can compare the effects of market volatilities on Mercedes-Benz Group 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 Mercedes-Benz Group with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mercedes-Benz Group and Volkswagen.

Diversification Opportunities for Mercedes-Benz Group and Volkswagen

0.73

Correlation Coefficient

Mercedes-Benz Group  Volkswagen

Poor diversification

The 3 months correlation between Mercedes-Benz and Volkswagen is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Mercedes Benz Group AG and Volkswagen AG 110 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG 110 and Mercedes-Benz Group 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 Mercedes Benz Group AG 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 110 has no effect on the direction of Mercedes-Benz Group i.e., Mercedes-Benz Group and Volkswagen go up and down completely randomly.

Pair Corralation between Mercedes-Benz Group and Volkswagen

Assuming the 90 days horizon Mercedes Benz Group AG is expected to generate 1.16 times more return on investment than Volkswagen. However, Mercedes-Benz Group is 1.16 times more volatile than Volkswagen AG 110. It trades about -0.11 of its potential returns per unit of risk. Volkswagen AG 110 is currently generating about -0.46 per unit of risk. If you would invest  2,011  in Mercedes Benz Group AG on February 4, 2024 and sell it today you would lose (83.00) from holding Mercedes Benz Group AG or give up 4.13% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.65%
Values	Daily Returns

Mercedes Benz Group AG  vs.  Volkswagen AG 110

Mercedes Benz Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mercedes Benz Group AG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Mercedes-Benz Group showed solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG 110

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG 110 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical and fundamental indicators, Volkswagen is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Mercedes-Benz Group and Volkswagen

The main advantage of trading using opposite Mercedes-Benz Group and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Mercedes-Benz Group 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 Mercedes Benz Group AG and Volkswagen AG 110 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.