Correlation Between Volkswagen and Target Corp
Can any of the company-specific risk be diversified away by investing in both Volkswagen and Target Corp 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 Target Corp into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG and Target Corp, you can compare the effects of market volatilities on Volkswagen and Target Corp 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 Target Corp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Target Corp.
Diversification Opportunities for Volkswagen and Target Corp
0.56 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between Volkswagen and Target is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Target Corp in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Target Corp 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 are associated (or correlated) with Target Corp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Target Corp has no effect on the direction of Volkswagen i.e., Volkswagen and Target Corp go up and down completely randomly.
Pair Corralation between Volkswagen and Target Corp
Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Target Corp. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.49 times less risky than Target Corp. The stock trades about -0.07 of its potential returns per unit of risk. The Target Corp is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest 15,608 in Target Corp on August 30, 2024 and sell it today you would lose (2,578) from holding Target Corp or give up 16.52% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 99.24% |
| Values | Daily Returns |
Volkswagen AG vs. Target Corp
Performance |
| Timeline |
| Volkswagen AG |
| Target Corp |
Volkswagen and Target Corp Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and Target Corp
The main advantage of trading using opposite Volkswagen and Target Corp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, Target Corp 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 Target Corp will offset losses from the drop in Target Corp's long position.| Volkswagen vs. Amedeo Air Four | Volkswagen vs. Associated British Foods | Volkswagen vs. Alaska Air Group | Volkswagen vs. Delta Air Lines |
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Check out your portfolio center.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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.
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