Correlation Between Rocket Internet and Talanx AG
Can any of the company-specific risk be diversified away by investing in both Rocket Internet and Talanx AG 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 Rocket Internet and Talanx AG into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Rocket Internet SE and Talanx AG, you can compare the effects of market volatilities on Rocket Internet and Talanx AG 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 Rocket Internet with a short position of Talanx AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Rocket Internet and Talanx AG.
Diversification Opportunities for Rocket Internet and Talanx AG
-0.08 | Correlation Coefficient |
Good diversification
The 3 months correlation between Rocket and Talanx is -0.08. Overlapping area represents the amount of risk that can be diversified away by holding Rocket Internet SE and Talanx AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Talanx AG and Rocket Internet 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 Rocket Internet SE are associated (or correlated) with Talanx AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Talanx AG has no effect on the direction of Rocket Internet i.e., Rocket Internet and Talanx AG go up and down completely randomly.
Pair Corralation between Rocket Internet and Talanx AG
Assuming the 90 days trading horizon Rocket Internet SE is expected to under-perform the Talanx AG. In addition to that, Rocket Internet is 1.27 times more volatile than Talanx AG. It trades about -0.03 of its total potential returns per unit of risk. Talanx AG is currently generating about 0.1 per unit of volatility. If you would invest 4,054 in Talanx AG on September 3, 2024 and sell it today you would earn a total of 3,911 from holding Talanx AG or generate 96.47% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Insignificant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Rocket Internet SE vs. Talanx AG
Performance |
| Timeline |
| Rocket Internet SE |
| Talanx AG |
Rocket Internet and Talanx AG Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Rocket Internet and Talanx AG
The main advantage of trading using opposite Rocket Internet and Talanx AG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Rocket Internet position performs unexpectedly, Talanx AG 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 Talanx AG will offset losses from the drop in Talanx AG's long position.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against Rocket Internet as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. Rocket Internet's systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, Rocket Internet's unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to Rocket Internet SE.
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Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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