Correlation Between Volkswagen and ITM Power
Can any of the company-specific risk be diversified away by investing in both Volkswagen and ITM Power 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 ITM Power into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG and ITM Power Plc, you can compare the effects of market volatilities on Volkswagen and ITM Power 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 ITM Power. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and ITM Power.
Diversification Opportunities for Volkswagen and ITM Power
0.89 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Volkswagen and ITM is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and ITM Power Plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITM Power Plc 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 ITM Power. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITM Power Plc has no effect on the direction of Volkswagen i.e., Volkswagen and ITM Power go up and down completely randomly.
Pair Corralation between Volkswagen and ITM Power
Assuming the 90 days trading horizon Volkswagen AG is expected to generate 0.3 times more return on investment than ITM Power. However, Volkswagen AG is 3.33 times less risky than ITM Power. It trades about -0.04 of its potential returns per unit of risk. ITM Power Plc is currently generating about -0.03 per unit of risk. If you would invest 9,730 in Volkswagen AG on September 1, 2024 and sell it today you would lose (1,696) from holding Volkswagen AG or give up 17.43% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Volkswagen AG vs. ITM Power Plc
Performance |
| Timeline |
| Volkswagen AG |
| ITM Power Plc |
Volkswagen and ITM Power Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and ITM Power
The main advantage of trading using opposite Volkswagen and ITM Power positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, ITM Power 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 ITM Power will offset losses from the drop in ITM Power's long position.| Volkswagen vs. Verizon Communications | Volkswagen vs. CarsalesCom | Volkswagen vs. Entravision Communications | Volkswagen vs. Lamar Advertising |
| ITM Power vs. Nel ASA | ITM Power vs. Powercell Sweden | ITM Power vs. Ballard Power Systems | ITM Power vs. Plug Power |
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 Bonds Directory module to find actively traded corporate debentures issued by US companies.
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