Correlation Between DAX Index and INDUSTRIAL MINERALS

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

Diversification Opportunities for DAX Index and INDUSTRIAL MINERALS

-0.7
  Correlation Coefficient

Excellent diversification

The 3 months correlation between DAX and INDUSTRIAL is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and INDUSTRIAL MINERALS LTD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INDUSTRIAL MINERALS LTD 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 INDUSTRIAL MINERALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INDUSTRIAL MINERALS LTD has no effect on the direction of DAX Index i.e., DAX Index and INDUSTRIAL MINERALS go up and down completely randomly.
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Pair Corralation between DAX Index and INDUSTRIAL MINERALS

Assuming the 90 days trading horizon DAX Index is expected to generate 2.56 times less return on investment than INDUSTRIAL MINERALS. But when comparing it to its historical volatility, DAX Index is 12.37 times less risky than INDUSTRIAL MINERALS. It trades about 0.08 of its potential returns per unit of risk. INDUSTRIAL MINERALS LTD is currently generating about 0.02 of returns per unit of risk over similar time horizon. If you would invest  23.00  in INDUSTRIAL MINERALS LTD on October 11, 2024 and sell it today you would lose (15.25) from holding INDUSTRIAL MINERALS LTD or give up 66.3% of portfolio value over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  INDUSTRIAL MINERALS LTD

 Performance 
       Timeline  

DAX Index and INDUSTRIAL MINERALS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and INDUSTRIAL MINERALS

The main advantage of trading using opposite DAX Index and INDUSTRIAL MINERALS positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, INDUSTRIAL MINERALS 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 INDUSTRIAL MINERALS will offset losses from the drop in INDUSTRIAL MINERALS's long position.
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The idea behind DAX Index and INDUSTRIAL MINERALS LTD 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.

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