Correlation Between DAX Index and JD SPORTS

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

Diversification Opportunities for DAX Index and JD SPORTS

-0.27
  Correlation Coefficient

Very good diversification

The 3 months correlation between DAX and 9JD is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and JD SPORTS FASH in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on JD SPORTS FASH 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 JD SPORTS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of JD SPORTS FASH has no effect on the direction of DAX Index i.e., DAX Index and JD SPORTS go up and down completely randomly.
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Pair Corralation between DAX Index and JD SPORTS

Assuming the 90 days trading horizon DAX Index is expected to generate 0.22 times more return on investment than JD SPORTS. However, DAX Index is 4.6 times less risky than JD SPORTS. It trades about 0.05 of its potential returns per unit of risk. JD SPORTS FASH is currently generating about -0.23 per unit of risk. If you would invest  1,925,734  in DAX Index on August 31, 2024 and sell it today you would earn a total of  16,839  from holding DAX Index or generate 0.87% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  JD SPORTS FASH

 Performance 
       Timeline  

DAX Index and JD SPORTS Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and JD SPORTS

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

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