Correlation Between DAX Index and FB Financial

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Can any of the company-specific risk be diversified away by investing in both DAX Index and FB Financial 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 FB Financial into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between DAX Index and FB Financial, you can compare the effects of market volatilities on DAX Index and FB Financial 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 DAX Index with a short position of FB Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of DAX Index and FB Financial.

Diversification Opportunities for DAX Index and FB Financial

-0.09
  Correlation Coefficient

Good diversification

The 3 months correlation between DAX and 2J2 is -0.09. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and FB Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FB Financial and DAX Index 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 DAX Index are associated (or correlated) with FB Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FB Financial has no effect on the direction of DAX Index i.e., DAX Index and FB Financial go up and down completely randomly.
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Pair Corralation between DAX Index and FB Financial

Assuming the 90 days trading horizon DAX Index is expected to generate 2.66 times less return on investment than FB Financial. But when comparing it to its historical volatility, DAX Index is 3.11 times less risky than FB Financial. It trades about 0.08 of its potential returns per unit of risk. FB Financial is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  4,185  in FB Financial on September 21, 2024 and sell it today you would earn a total of  775.00  from holding FB Financial or generate 18.52% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  FB Financial

 Performance 
       Timeline  

DAX Index and FB Financial Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and FB Financial

The main advantage of trading using opposite DAX Index and FB Financial positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, FB Financial 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 FB Financial will offset losses from the drop in FB Financial's long position.
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The idea behind DAX Index and FB Financial 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.

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