Correlation Between DAX Index and Great West

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

Diversification Opportunities for DAX Index and Great West

0.62
  Correlation Coefficient

Poor diversification

The 3 months correlation between DAX and Great is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Great West Lifeco in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Great West Lifeco 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 Great West. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Great West Lifeco has no effect on the direction of DAX Index i.e., DAX Index and Great West go up and down completely randomly.
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Pair Corralation between DAX Index and Great West

Assuming the 90 days trading horizon DAX Index is expected to generate 0.7 times more return on investment than Great West. However, DAX Index is 1.43 times less risky than Great West. It trades about 0.11 of its potential returns per unit of risk. Great West Lifeco is currently generating about 0.06 per unit of risk. If you would invest  1,665,055  in DAX Index on September 12, 2024 and sell it today you would earn a total of  374,861  from holding DAX Index or generate 22.51% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy99.6%
ValuesDaily Returns

DAX Index  vs.  Great West Lifeco

 Performance 
       Timeline  

DAX Index and Great West Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and Great West

The main advantage of trading using opposite DAX Index and Great West positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, Great West 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 Great West will offset losses from the drop in Great West's long position.
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The idea behind DAX Index and Great West Lifeco 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 Stocks Directory module to find actively traded stocks across global markets.

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