Correlation Between Ultra Clean and DAX Index

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

Diversification Opportunities for Ultra Clean and DAX Index

-0.29
  Correlation Coefficient

Very good diversification

The 3 months correlation between Ultra and DAX is -0.29. Overlapping area represents the amount of risk that can be diversified away by holding Ultra Clean Holdings and DAX Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAX Index and Ultra Clean 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 Ultra Clean Holdings are associated (or correlated) with DAX Index. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAX Index has no effect on the direction of Ultra Clean i.e., Ultra Clean and DAX Index go up and down completely randomly.
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Pair Corralation between Ultra Clean and DAX Index

Assuming the 90 days horizon Ultra Clean Holdings is expected to under-perform the DAX Index. In addition to that, Ultra Clean is 3.5 times more volatile than DAX Index. It trades about -0.12 of its total potential returns per unit of risk. DAX Index is currently generating about 0.23 per unit of volatility. If you would invest  1,926,175  in DAX Index on September 28, 2024 and sell it today you would earn a total of  58,702  from holding DAX Index or generate 3.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthInsignificant
Accuracy100.0%
ValuesDaily Returns

Ultra Clean Holdings  vs.  DAX Index

 Performance 
       Timeline  

Ultra Clean and DAX Index Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Ultra Clean and DAX Index

The main advantage of trading using opposite Ultra Clean and DAX Index positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ultra Clean position performs unexpectedly, DAX Index 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 DAX Index will offset losses from the drop in DAX Index's long position.
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The idea behind Ultra Clean Holdings and DAX Index 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.

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