Correlation Between DAX Index and UNITED UTILITIES

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

Diversification Opportunities for DAX Index and UNITED UTILITIES

0.31
  Correlation Coefficient

Weak diversification

The 3 months correlation between DAX and UNITED is 0.31. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and UNITED UTILITIES GR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on UNITED UTILITIES 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 UNITED UTILITIES. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of UNITED UTILITIES has no effect on the direction of DAX Index i.e., DAX Index and UNITED UTILITIES go up and down completely randomly.
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Pair Corralation between DAX Index and UNITED UTILITIES

Assuming the 90 days trading horizon DAX Index is expected to generate about the same return on investment as UNITED UTILITIES GR. But, DAX Index is 1.98 times less risky than UNITED UTILITIES. It trades about 0.08 of its potential returns per unit of risk. UNITED UTILITIES GR is currently generating about 0.04 per unit of risk. If you would invest  1,126  in UNITED UTILITIES GR on August 31, 2024 and sell it today you would earn a total of  214.00  from holding UNITED UTILITIES GR or generate 19.01% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

DAX Index  vs.  UNITED UTILITIES GR

 Performance 
       Timeline  

DAX Index and UNITED UTILITIES Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with DAX Index and UNITED UTILITIES

The main advantage of trading using opposite DAX Index and UNITED UTILITIES positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if DAX Index position performs unexpectedly, UNITED UTILITIES 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 UNITED UTILITIES will offset losses from the drop in UNITED UTILITIES's long position.
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The idea behind DAX Index and UNITED UTILITIES GR 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.

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