Correlation Between Volkswagen and Stellantis

Can any of the company-specific risk be diversified away by investing in both Volkswagen and Stellantis 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 Stellantis 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 Stellantis NV, you can compare the effects of market volatilities on Volkswagen and Stellantis 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 Stellantis. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and Stellantis.

Diversification Opportunities for Volkswagen and Stellantis

0.68

Correlation Coefficient

Volkswagen  Stellantis

Poor diversification

The 3 months correlation between Volkswagen and Stellantis is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG Pref and Stellantis NV in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Stellantis NV 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 Stellantis. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Stellantis NV has no effect on the direction of Volkswagen i.e., Volkswagen and Stellantis go up and down completely randomly.

Pair Corralation between Volkswagen and Stellantis

Assuming the 90 days horizon Volkswagen AG Pref is expected to generate 0.72 times more return on investment than Stellantis. However, Volkswagen AG Pref is 1.4 times less risky than Stellantis. It trades about -0.18 of its potential returns per unit of risk. Stellantis NV is currently generating about -0.16 per unit of risk. If you would invest  1,078  in Volkswagen AG Pref on August 24, 2024 and sell it today you would lose (204.00) from holding Volkswagen AG Pref or give up 18.92% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Volkswagen AG Pref  vs.  Stellantis NV

Volkswagen AG Pref

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG Pref has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Stellantis NV

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Stellantis NV has generated negative risk-adjusted returns adding no value to investors with long positions. Despite unsteady performance in the last few months, the Stock's essential indicators remain somewhat strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with Volkswagen and Stellantis

The main advantage of trading using opposite Volkswagen and Stellantis positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Volkswagen position performs unexpectedly, Stellantis 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 Stellantis will offset losses from the drop in Stellantis' long position.

The idea behind Volkswagen AG Pref and Stellantis NV pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.