Correlation Between Volkswagen and Hyundai
Can any of the company-specific risk be diversified away by investing in both Volkswagen and Hyundai 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 Hyundai into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG and Hyundai Motor, you can compare the effects of market volatilities on Volkswagen and Hyundai 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 Hyundai. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Hyundai.
Diversification Opportunities for Volkswagen and Hyundai
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Volkswagen and Hyundai is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and Hyundai Motor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hyundai Motor 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 Hyundai. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hyundai Motor has no effect on the direction of Volkswagen i.e., Volkswagen and Hyundai go up and down completely randomly.
Pair Corralation between Volkswagen and Hyundai
Assuming the 90 days trading horizon Volkswagen AG is expected to under-perform the Hyundai. But the stock apears to be less risky and, when comparing its historical volatility, Volkswagen AG is 1.54 times less risky than Hyundai. The stock trades about -0.21 of its potential returns per unit of risk. The Hyundai Motor is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 5,053 in Hyundai Motor on August 29, 2024 and sell it today you would earn a total of 347.00 from holding Hyundai Motor or generate 6.87% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Volkswagen AG vs. Hyundai Motor
Performance |
| Timeline |
| Volkswagen AG |
| Hyundai Motor |
Volkswagen and Hyundai Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and Hyundai
The main advantage of trading using opposite Volkswagen and Hyundai positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, Hyundai 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 Hyundai will offset losses from the drop in Hyundai's long position.| Volkswagen vs. Tesla Inc | Volkswagen vs. Toyota Motor | Volkswagen vs. Toyota Motor | Volkswagen vs. BYD Company Limited |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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