Correlation Between Volkswagen and China Overseas

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

By analyzing existing cross correlation between Volkswagen AG and China Overseas Land, you can compare the effects of market volatilities on Volkswagen and China Overseas 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 China Overseas. Check out your portfolio center. Please also check ongoing floating volatility patterns of Volkswagen and China Overseas.

Diversification Opportunities for Volkswagen and China Overseas

-0.27

Correlation Coefficient

Volkswagen  China Overseas

Very good diversification

The 3 months correlation between Volkswagen and China is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Volkswagen AG and China Overseas Land in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on China Overseas Land 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 are associated (or correlated) with China Overseas. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of China Overseas Land has no effect on the direction of Volkswagen i.e., Volkswagen and China Overseas go up and down completely randomly.

Pair Corralation between Volkswagen and China Overseas

Assuming the 90 days trading horizon Volkswagen AG is expected to generate 0.75 times more return on investment than China Overseas. However, Volkswagen AG is 1.34 times less risky than China Overseas. It trades about 0.03 of its potential returns per unit of risk. China Overseas Land is currently generating about -0.03 per unit of risk. If you would invest  9,038  in Volkswagen AG on April 23, 2025 and sell it today you would earn a total of  207.00  from holding Volkswagen AG or generate 2.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Volkswagen AG  vs.  China Overseas Land

Volkswagen AG

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Volkswagen AG are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Volkswagen is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

China Overseas Land

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Volkswagen and China Overseas

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

The idea behind Volkswagen AG and China Overseas Land 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.