Correlation Between DAX Index and UPDATE SOFTWARE

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

Diversification Opportunities for DAX Index and UPDATE SOFTWARE

0.4
  Correlation Coefficient

Very weak diversification

The 3 months correlation between DAX and UPDATE is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and UPDATE SOFTWARE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UPDATE SOFTWARE 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 UPDATE SOFTWARE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UPDATE SOFTWARE has no effect on the direction of DAX Index i.e., DAX Index and UPDATE SOFTWARE go up and down completely randomly.
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Pair Corralation between DAX Index and UPDATE SOFTWARE

Assuming the 90 days trading horizon DAX Index is expected to generate 2.06 times less return on investment than UPDATE SOFTWARE. But when comparing it to its historical volatility, DAX Index is 4.31 times less risky than UPDATE SOFTWARE. It trades about 0.09 of its potential returns per unit of risk. UPDATE SOFTWARE is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,287  in UPDATE SOFTWARE on August 29, 2024 and sell it today you would earn a total of  324.00  from holding UPDATE SOFTWARE or generate 25.17% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  UPDATE SOFTWARE

 Performance 
       Timeline  

DAX Index and UPDATE SOFTWARE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and UPDATE SOFTWARE

The main advantage of trading using opposite DAX Index and UPDATE SOFTWARE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, UPDATE SOFTWARE 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 UPDATE SOFTWARE will offset losses from the drop in UPDATE SOFTWARE's long position.
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The idea behind DAX Index and UPDATE SOFTWARE 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.

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