Correlation Between Daimler AG and Volkswagen

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

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

Diversification Opportunities for Daimler AG and Volkswagen

0.0

Correlation Coefficient

Daimler AG  Volkswagen

Pay attention - limited upside

The 3 months correlation between Daimler and Volkswagen is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding Daimler AG ADR and Volkswagen AG VZO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG VZO and Daimler AG 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 Daimler AG ADR 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 VZO has no effect on the direction of Daimler AG i.e., Daimler AG and Volkswagen go up and down completely randomly.

Pair Corralation between Daimler AG and Volkswagen

If you would invest  11,844  in Volkswagen AG VZO on January 25, 2024 and sell it today you would earn a total of  1,159  from holding Volkswagen AG VZO or generate 9.79% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

Daimler AG ADR  vs.  Volkswagen AG VZO

Daimler AG ADR

Risk-Adjusted Performance

0 of 100

Very Weak

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

Volkswagen AG VZO

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG VZO are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Volkswagen may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Daimler AG and Volkswagen

The main advantage of trading using opposite Daimler AG and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Daimler AG 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 Daimler AG ADR and Volkswagen AG VZO 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 Commodity Channel module to use Commodity Channel Index to analyze current equity momentum.