Correlation Between Volkswagen and Bank of Ireland Group PLC
Can any of the company-specific risk be diversified away by investing in both Volkswagen and Bank of Ireland Group PLC 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 Bank of Ireland Group PLC into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Volkswagen AG Pref and Bank of Ireland, you can compare the effects of market volatilities on Volkswagen and Bank of Ireland Group PLC 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 Bank of Ireland Group PLC. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Bank of Ireland Group PLC.
Diversification Opportunities for Volkswagen and Bank of Ireland Group PLC
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Volkswagen and Bank is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Pref and Bank of Ireland in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bank of Ireland Group 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 Pref are associated (or correlated) with Bank of Ireland Group PLC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bank of Ireland Group PLC has no effect on the direction of Volkswagen i.e., Volkswagen and Bank of Ireland Group PLC go up and down completely randomly.
Pair Corralation between Volkswagen and Bank of Ireland Group PLC
Assuming the 90 days horizon Volkswagen is expected to generate 1.34 times less return on investment than Bank of Ireland Group PLC. But when comparing it to its historical volatility, Volkswagen AG Pref is 1.87 times less risky than Bank of Ireland Group PLC. It trades about 0.36 of its potential returns per unit of risk. Bank of Ireland is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest 900.00 in Bank of Ireland on October 28, 2024 and sell it today you would earn a total of 115.00 from holding Bank of Ireland or generate 12.78% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Volkswagen AG Pref vs. Bank of Ireland
Performance |
| Timeline |
| Volkswagen AG Pref |
| Bank of Ireland Group PLC |
Volkswagen and Bank of Ireland Group PLC Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Volkswagen and Bank of Ireland Group PLC
The main advantage of trading using opposite Volkswagen and Bank of Ireland Group PLC positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, Bank of Ireland Group PLC 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 Bank of Ireland Group PLC will offset losses from the drop in Bank of Ireland Group PLC's long position.| Volkswagen vs. Volkswagen AG 110 | Volkswagen vs. Porsche Automobil Holding | Volkswagen vs. Ferrari NV | Volkswagen vs. Porsche Automobile Holding |
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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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.
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