Correlation Between DAX Index and PT Steel

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

Diversification Opportunities for DAX Index and PT Steel

-0.57
  Correlation Coefficient

Excellent diversification

The 3 months correlation between DAX and S08 is -0.57. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and PT Steel Pipe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PT Steel Pipe 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 PT Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PT Steel Pipe has no effect on the direction of DAX Index i.e., DAX Index and PT Steel go up and down completely randomly.
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Pair Corralation between DAX Index and PT Steel

Assuming the 90 days trading horizon DAX Index is expected to generate 0.2 times more return on investment than PT Steel. However, DAX Index is 4.92 times less risky than PT Steel. It trades about 0.19 of its potential returns per unit of risk. PT Steel Pipe is currently generating about -0.03 per unit of risk. If you would invest  1,874,711  in DAX Index on November 2, 2024 and sell it today you would earn a total of  298,009  from holding DAX Index or generate 15.9% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  PT Steel Pipe

 Performance 
       Timeline  

DAX Index and PT Steel Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and PT Steel

The main advantage of trading using opposite DAX Index and PT Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, PT Steel 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 PT Steel will offset losses from the drop in PT Steel's long position.
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The idea behind DAX Index and PT Steel Pipe 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 Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.

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