Correlation Between Ford and Volkswagen
Can any of the company-specific risk be diversified away by investing in both Ford 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 Ford and Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Ford Motor and Volkswagen AG Pref, you can compare the effects of market volatilities on Ford 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 Ford with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Volkswagen.
Diversification Opportunities for Ford and Volkswagen
-0.35 | Correlation Coefficient |
Very good diversification
The 3 months correlation between Ford and Volkswagen is -0.35. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Volkswagen AG Pref in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG Pref and Ford 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 Ford Motor 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 Pref has no effect on the direction of Ford i.e., Ford and Volkswagen go up and down completely randomly.
Pair Corralation between Ford and Volkswagen
Taking into account the 90-day investment horizon Ford is expected to generate 3.16 times less return on investment than Volkswagen. In addition to that, Ford is 1.29 times more volatile than Volkswagen AG Pref. It trades about 0.1 of its total potential returns per unit of risk. Volkswagen AG Pref is currently generating about 0.39 per unit of volatility. If you would invest 912.00 in Volkswagen AG Pref on November 1, 2024 and sell it today you would earn a total of 101.00 from holding Volkswagen AG Pref or generate 11.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Ford Motor vs. Volkswagen AG Pref
Performance |
| Timeline |
| Ford Motor |
| Volkswagen AG Pref |
Ford and Volkswagen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Ford and Volkswagen
The main advantage of trading using opposite Ford and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford 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 Ford Motor and Volkswagen AG Pref 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. Volkswagen AG 110 | Volkswagen vs. Porsche Automobil Holding | Volkswagen vs. Ferrari NV | Volkswagen vs. Porsche Automobile Holding |
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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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