Correlation Between Subaru Corp and Volkswagen
Can any of the company-specific risk be diversified away by investing in both Subaru Corp 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 Subaru Corp and Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Subaru Corp ADR and Volkswagen AG Pref, you can compare the effects of market volatilities on Subaru Corp 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 Subaru Corp with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of Subaru Corp and Volkswagen.
Diversification Opportunities for Subaru Corp and Volkswagen
0.87 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Subaru and Volkswagen is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Subaru Corp ADR 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 Subaru Corp 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 Subaru Corp 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 Pref has no effect on the direction of Subaru Corp i.e., Subaru Corp and Volkswagen go up and down completely randomly.
Pair Corralation between Subaru Corp and Volkswagen
Assuming the 90 days horizon Subaru Corp ADR is expected to generate 1.37 times more return on investment than Volkswagen. However, Subaru Corp is 1.37 times more volatile than Volkswagen AG Pref. It trades about -0.2 of its potential returns per unit of risk. Volkswagen AG Pref is currently generating about -0.33 per unit of risk. If you would invest 899.00 in Subaru Corp ADR on August 31, 2024 and sell it today you would lose (102.00) from holding Subaru Corp ADR or give up 11.35% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 95.65% |
| Values | Daily Returns |
Subaru Corp ADR vs. Volkswagen AG Pref
Performance |
| Timeline |
| Subaru Corp ADR |
| Volkswagen AG Pref |
Subaru Corp and Volkswagen Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Subaru Corp and Volkswagen
The main advantage of trading using opposite Subaru Corp and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Subaru Corp 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.| Subaru Corp vs. Mazda Motor Corp | Subaru Corp vs. Subaru Corp | Subaru Corp vs. Bayerische Motoren Werke | Subaru Corp vs. Bridgestone Corp ADR |
| Volkswagen vs. Volkswagen AG 110 | Volkswagen vs. Porsche Automobil Holding | Volkswagen vs. Ferrari NV | Volkswagen vs. Bayerische Motoren Werke |
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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.
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