Correlation Between DAX Index and Telecom Argentina

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

Diversification Opportunities for DAX Index and Telecom Argentina

0.45
  Correlation Coefficient

Very weak diversification

The 3 months correlation between DAX and Telecom is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Telecom Argentina SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Telecom Argentina 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 Telecom Argentina. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Telecom Argentina has no effect on the direction of DAX Index i.e., DAX Index and Telecom Argentina go up and down completely randomly.
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Pair Corralation between DAX Index and Telecom Argentina

Assuming the 90 days trading horizon DAX Index is expected to generate 0.18 times more return on investment than Telecom Argentina. However, DAX Index is 5.42 times less risky than Telecom Argentina. It trades about 0.57 of its potential returns per unit of risk. Telecom Argentina SA is currently generating about -0.14 per unit of risk. If you would invest  2,002,466  in DAX Index on November 3, 2024 and sell it today you would earn a total of  170,739  from holding DAX Index or generate 8.53% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  Telecom Argentina SA

 Performance 
       Timeline  

DAX Index and Telecom Argentina Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and Telecom Argentina

The main advantage of trading using opposite DAX Index and Telecom Argentina positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, Telecom Argentina 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 Telecom Argentina will offset losses from the drop in Telecom Argentina's long position.
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The idea behind DAX Index and Telecom Argentina SA 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 File Import module to quickly import all of your third-party portfolios from your local drive in csv format.

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