Correlation Between Deutsche Boerse and Wesfarmers

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

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

Diversification Opportunities for Deutsche Boerse and Wesfarmers

0.29

Correlation Coefficient

Deutsche Boerse  Wesfarmers

Modest diversification

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

Pair Corralation between Deutsche Boerse and Wesfarmers

Assuming the 90 days horizon Deutsche Boerse AG is expected to generate 0.47 times more return on investment than Wesfarmers. However, Deutsche Boerse AG is 2.13 times less risky than Wesfarmers. It trades about -0.04 of its potential returns per unit of risk. Wesfarmers Ltd ADR is currently generating about -0.18 per unit of risk. If you would invest  2,316  in Deutsche Boerse AG on October 10, 2024 and sell it today you would lose (17.00) from holding Deutsche Boerse AG or give up 0.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Deutsche Boerse AG  vs.  Wesfarmers Ltd ADR

Deutsche Boerse AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deutsche Boerse AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Deutsche Boerse is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Wesfarmers ADR

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Wesfarmers Ltd ADR has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Wesfarmers is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Deutsche Boerse and Wesfarmers

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

The idea behind Deutsche Boerse AG and Wesfarmers Ltd ADR 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.