Correlation Between Deutsche Börse and London Stock

Can any of the company-specific risk be diversified away by investing in both Deutsche Börse and London Stock 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 Deutsche Börse and London Stock into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Deutsche Brse AG and London Stock Exchange, you can compare the effects of market volatilities on Deutsche Börse and London Stock 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 Deutsche Börse with a short position of London Stock. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Börse and London Stock.

Diversification Opportunities for Deutsche Börse and London Stock

0.55

Correlation Coefficient

Deutsche Börse  London Stock

Very weak diversification

The 3 months correlation between Deutsche and London is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Brse AG and London Stock Exchange in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on London Stock Exchange and Deutsche Börse 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 Deutsche Brse AG are associated (or correlated) with London Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of London Stock Exchange has no effect on the direction of Deutsche Börse i.e., Deutsche Börse and London Stock go up and down completely randomly.

Pair Corralation between Deutsche Börse and London Stock

Assuming the 90 days horizon Deutsche Brse AG is expected to generate 1.22 times more return on investment than London Stock. However, Deutsche Börse is 1.22 times more volatile than London Stock Exchange. It trades about 0.12 of its potential returns per unit of risk. London Stock Exchange is currently generating about 0.01 per unit of risk. If you would invest  22,815  in Deutsche Brse AG on December 2, 2024 and sell it today you would earn a total of  3,393  from holding Deutsche Brse AG or generate 14.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.36%
Values	Daily Returns

Deutsche Brse AG  vs.  London Stock Exchange

Deutsche Brse AG

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Brse AG are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, Deutsche Börse reported solid returns over the last few months and may actually be approaching a breakup point.

London Stock Exchange

Risk-Adjusted Performance

Very Weak

Over the last 90 days London Stock Exchange has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, London Stock is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Deutsche Börse and London Stock

The main advantage of trading using opposite Deutsche Börse and London Stock positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deutsche Börse position performs unexpectedly, London Stock 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 London Stock will offset losses from the drop in London Stock's long position.

The idea behind Deutsche Brse AG and London Stock Exchange 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.