Correlation Between Bayerische Motoren and Mercedes-Benz Group

Can any of the company-specific risk be diversified away by investing in both Bayerische Motoren and Mercedes-Benz Group 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 Bayerische Motoren and Mercedes-Benz Group into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Bayerische Motoren Werke and Mercedes Benz Group AG, you can compare the effects of market volatilities on Bayerische Motoren and Mercedes-Benz Group 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 Bayerische Motoren with a short position of Mercedes-Benz Group. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bayerische Motoren and Mercedes-Benz Group.

Diversification Opportunities for Bayerische Motoren and Mercedes-Benz Group

0.88

Correlation Coefficient

Bayerische Motoren  Mercedes-Benz Group

Very poor diversification

The 3 months correlation between Bayerische and Mercedes-Benz is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Bayerische Motoren Werke and Mercedes Benz Group AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mercedes Benz Group and Bayerische Motoren 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 Bayerische Motoren Werke are associated (or correlated) with Mercedes-Benz Group. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mercedes Benz Group has no effect on the direction of Bayerische Motoren i.e., Bayerische Motoren and Mercedes-Benz Group go up and down completely randomly.

Pair Corralation between Bayerische Motoren and Mercedes-Benz Group

Assuming the 90 days horizon Bayerische Motoren Werke is expected to under-perform the Mercedes-Benz Group. In addition to that, Bayerische Motoren is 1.08 times more volatile than Mercedes Benz Group AG. It trades about -0.22 of its total potential returns per unit of risk. Mercedes Benz Group AG is currently generating about -0.12 per unit of volatility. If you would invest  1,999  in Mercedes Benz Group AG on February 3, 2024 and sell it today you would lose (88.00) from holding Mercedes Benz Group AG or give up 4.4% of portfolio value over 90 days.

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

Bayerische Motoren Werke  vs.  Mercedes Benz Group AG

Bayerische Motoren Werke

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Bayerische Motoren Werke are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong basic indicators, Bayerische Motoren is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Mercedes Benz Group

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mercedes Benz Group AG are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, Mercedes-Benz Group may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Bayerische Motoren and Mercedes-Benz Group

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

The idea behind Bayerische Motoren Werke and Mercedes Benz Group AG 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.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..