Correlation Between DAX Index and NetApp

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

Diversification Opportunities for DAX Index and NetApp

0.74
  Correlation Coefficient

Poor diversification

The 3 months correlation between DAX and NetApp is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and NetApp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetApp Inc 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 NetApp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetApp Inc has no effect on the direction of DAX Index i.e., DAX Index and NetApp go up and down completely randomly.
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Pair Corralation between DAX Index and NetApp

Assuming the 90 days trading horizon DAX Index is expected to generate 0.39 times more return on investment than NetApp. However, DAX Index is 2.58 times less risky than NetApp. It trades about 0.12 of its potential returns per unit of risk. NetApp Inc is currently generating about 0.02 per unit of risk. If you would invest  1,806,821  in DAX Index on September 13, 2024 and sell it today you would earn a total of  233,095  from holding DAX Index or generate 12.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  NetApp Inc

 Performance 
       Timeline  

DAX Index and NetApp Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and NetApp

The main advantage of trading using opposite DAX Index and NetApp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, NetApp 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 NetApp will offset losses from the drop in NetApp's long position.
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The idea behind DAX Index and NetApp Inc 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.

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