Correlation Between Mercedes Benz and Bayerische Motoren

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

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

Diversification Opportunities for Mercedes Benz and Bayerische Motoren

0.81

Correlation Coefficient

Mercedes Benz  Bayerische Motoren

Very poor diversification

The 3 months correlation between Mercedes and Bayerische is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Mercedes Benz Group AG and Bayerische Motoren Werke in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Bayerische Motoren Werke and Mercedes Benz 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 Mercedes Benz Group AG are associated (or correlated) with Bayerische Motoren. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Bayerische Motoren Werke has no effect on the direction of Mercedes Benz i.e., Mercedes Benz and Bayerische Motoren go up and down completely randomly.

Pair Corralation between Mercedes Benz and Bayerische Motoren

Assuming the 90 days horizon Mercedes Benz Group AG is expected to generate 0.89 times more return on investment than Bayerische Motoren. However, Mercedes Benz Group AG is 1.13 times less risky than Bayerische Motoren. It trades about -0.11 of its potential returns per unit of risk. Bayerische Motoren Werke is currently generating about -0.2 per unit of risk. If you would invest  8,093  in Mercedes Benz Group AG on February 5, 2024 and sell it today you would lose (320.00) from holding Mercedes Benz Group AG or give up 3.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Mercedes Benz Group AG  vs.  Bayerische Motoren Werke

Mercedes Benz Group

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Mercedes Benz Group AG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Mercedes Benz reported solid returns over the last few months and may actually be approaching a breakup point.

Bayerische Motoren Werke

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Bayerische Motoren Werke are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly unfluctuating basic indicators, Bayerische Motoren may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Mercedes Benz and Bayerische Motoren

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

The idea behind Mercedes Benz Group AG and Bayerische Motoren Werke 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.