Correlation Between DAX Index and Associated

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

Diversification Opportunities for DAX Index and Associated

0.67
  Correlation Coefficient

Poor diversification

The 3 months correlation between DAX and Associated is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Associated Motor Finance in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Associated Motor Finance 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 Associated. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Associated Motor Finance has no effect on the direction of DAX Index i.e., DAX Index and Associated go up and down completely randomly.
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Pair Corralation between DAX Index and Associated

Assuming the 90 days trading horizon DAX Index is expected to generate 5.88 times less return on investment than Associated. But when comparing it to its historical volatility, DAX Index is 4.17 times less risky than Associated. It trades about 0.1 of its potential returns per unit of risk. Associated Motor Finance is currently generating about 0.14 of returns per unit of risk over similar time horizon. If you would invest  1,150  in Associated Motor Finance on August 24, 2024 and sell it today you would earn a total of  1,710  from holding Associated Motor Finance or generate 148.7% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy92.89%
ValuesDaily Returns

DAX Index  vs.  Associated Motor Finance

 Performance 
       Timeline  

DAX Index and Associated Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and Associated

The main advantage of trading using opposite DAX Index and Associated positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, Associated 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 Associated will offset losses from the drop in Associated's long position.
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The idea behind DAX Index and Associated Motor Finance 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.

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