Correlation Between BYD Co and Volkswagen
Can any of the company-specific risk be diversified away by investing in both BYD Co 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 BYD Co and Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between BYD Co Ltd and Volkswagen AG 110, you can compare the effects of market volatilities on BYD Co 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 BYD Co with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Volkswagen.
Diversification Opportunities for BYD Co and Volkswagen
0.78 | Correlation Coefficient |
Poor diversification
The 3 months correlation between BYD and Volkswagen is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd 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 BYD Co 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 BYD Co Ltd 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 BYD Co i.e., BYD Co and Volkswagen go up and down completely randomly.
Pair Corralation between BYD Co and Volkswagen
Assuming the 90 days horizon BYD Co Ltd is expected to generate 2.37 times more return on investment than Volkswagen. However, BYD Co is 2.37 times more volatile than Volkswagen AG 110. It trades about 0.25 of its potential returns per unit of risk. Volkswagen AG 110 is currently generating about 0.33 per unit of risk. If you would invest 7,092 in BYD Co Ltd on December 4, 2024 and sell it today you would earn a total of 1,615 from holding BYD Co Ltd or generate 22.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
BYD Co Ltd vs. Volkswagen AG 110
Performance |
| Timeline |
| BYD Co |
| Volkswagen AG 110 |
BYD Co and Volkswagen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with BYD Co and Volkswagen
The main advantage of trading using opposite BYD Co and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if BYD Co 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 BYD Co Ltd 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.| Volkswagen vs. Porsche Automobile Holding | Volkswagen vs. Volkswagen AG | Volkswagen vs. Mercedes Benz Group AG | Volkswagen vs. Volkswagen AG Pref |
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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.
Other Complementary Tools
| Latest Portfolios Quick portfolio dashboard that showcases your latest portfolios | |
| Portfolio Diagnostics Use generated alerts and portfolio events aggregator to diagnose current holdings | |
| Risk-Return Analysis View associations between returns expected from investment and the risk you assume | |
| Portfolio Volatility Check portfolio volatility and analyze historical return density to properly model market risk | |
| Idea Optimizer Use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio |