Correlation Between BYD Co and Volkswagen

Can any of the company-specific risk be diversified away by investing in both BYD Co and Volkswagen 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 BYD Co and Volkswagen into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between BYD Co Ltd and Volkswagen AG VZO, you can compare the effects of market volatilities on BYD Co and Volkswagen 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 BYD Co with a short position of Volkswagen. Check out your portfolio center. Please also check ongoing floating volatility patterns of BYD Co and Volkswagen.

Diversification Opportunities for BYD Co and Volkswagen

-0.06

Correlation Coefficient

BYD Co  Volkswagen

Good diversification

The 3 months correlation between BYD and Volkswagen is -0.06. Overlapping area represents the amount of risk that can be diversified away by holding BYD Co Ltd and Volkswagen AG VZO in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG VZO and BYD Co 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 BYD Co Ltd are associated (or correlated) with Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG VZO has no effect on the direction of BYD Co i.e., BYD Co and Volkswagen go up and down completely randomly.

Pair Corralation between BYD Co and Volkswagen

Assuming the 90 days horizon BYD Co Ltd is expected to generate 1.26 times more return on investment than Volkswagen. However, BYD Co is 1.26 times more volatile than Volkswagen AG VZO. It trades about 0.22 of its potential returns per unit of risk. Volkswagen AG VZO is currently generating about -0.07 per unit of risk. If you would invest  4,824  in BYD Co Ltd on February 3, 2024 and sell it today you would earn a total of  1,044  from holding BYD Co Ltd or generate 21.64% return on investment over 90 days.

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

BYD Co Ltd  vs.  Volkswagen AG VZO

BYD Co

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile fundamental indicators, BYD Co showed solid returns over the last few months and may actually be approaching a breakup point.

Volkswagen AG VZO

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG VZO has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Volkswagen is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with BYD Co and Volkswagen

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

The idea behind BYD Co Ltd and Volkswagen AG VZO 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.