Correlation Between DAX Index and CRISPR Therapeutics

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Apply Can any of the company-specific risk be diversified away by investing in both DAX Index and CRISPR Therapeutics 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 DAX Index and CRISPR Therapeutics into the same portfolio, which is an essential part of the fundamental portfolio management process.

Diversification Opportunities for DAX Index and CRISPR Therapeutics

Pair Corralation between DAX Index and CRISPR Therapeutics

DAX Index  vs.  CRISPR Therapeutics AG

Pair Trading with DAX Index and CRISPR Therapeutics

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