Correlation Between Volkswagen and Spirent Communications
Can any of the company-specific risk be diversified away by investing in both Volkswagen and Spirent Communications 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 Spirent Communications into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG and Spirent Communications plc, you can compare the effects of market volatilities on Volkswagen and Spirent Communications 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 Spirent Communications. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Spirent Communications.
Diversification Opportunities for Volkswagen and Spirent Communications
-0.64 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between Volkswagen and Spirent is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Spirent Communications plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Spirent Communications 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 Spirent Communications. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Spirent Communications has no effect on the direction of Volkswagen i.e., Volkswagen and Spirent Communications go up and down completely randomly.
Pair Corralation between Volkswagen and Spirent Communications
Assuming the 90 days horizon Volkswagen AG is expected to under-perform the Spirent Communications. But the pink sheet apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.86 times less risky than Spirent Communications. The pink sheet trades about -0.05 of its potential returns per unit of risk. The Spirent Communications plc is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest 225.00 in Spirent Communications plc on October 24, 2024 and sell it today you would lose (1.00) from holding Spirent Communications plc or give up 0.44% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
Volkswagen AG vs. Spirent Communications plc
Performance |
| Timeline |
| Volkswagen AG |
| Spirent Communications |
Volkswagen and Spirent Communications Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and Spirent Communications
The main advantage of trading using opposite Volkswagen and Spirent Communications positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, Spirent Communications 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 Spirent Communications will offset losses from the drop in Spirent Communications' long position.| Volkswagen vs. Bayerische Motoren Werke | Volkswagen vs. Honda Motor Co | Volkswagen vs. Porsche Automobil Holding | Volkswagen vs. Bayerische Motoren Werke |
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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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.
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