Correlation Between Nationwide Building and Volkswagen

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

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

Diversification Opportunities for Nationwide Building and Volkswagen

0.72

Correlation Coefficient

Nationwide Building  Volkswagen

Poor diversification

The 3 months correlation between Nationwide and Volkswagen is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Nationwide Building Society and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and Nationwide Building 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 Nationwide Building Society 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 has no effect on the direction of Nationwide Building i.e., Nationwide Building and Volkswagen go up and down completely randomly.

Pair Corralation between Nationwide Building and Volkswagen

Assuming the 90 days trading horizon Nationwide Building Society is expected to generate 0.14 times more return on investment than Volkswagen. However, Nationwide Building Society is 7.02 times less risky than Volkswagen. It trades about -0.31 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.16 per unit of risk. If you would invest  1,345,000  in Nationwide Building Society on January 29, 2024 and sell it today you would lose (15,000) from holding Nationwide Building Society or give up 1.12% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	95.0%
Values	Daily Returns

Nationwide Building Society  vs.  Volkswagen AG

Nationwide Building

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nationwide Building Society are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Nationwide Building is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Volkswagen AG

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite quite uncertain basic indicators, Volkswagen may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Nationwide Building and Volkswagen

The main advantage of trading using opposite Nationwide Building and Volkswagen positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nationwide Building 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 Nationwide Building Society and Volkswagen 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.

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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..