Correlation Between Xtrackers ShortDAX and Adidas AG

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

By analyzing existing cross correlation between Xtrackers ShortDAX and adidas AG, you can compare the effects of market volatilities on Xtrackers ShortDAX and Adidas 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 Xtrackers ShortDAX with a short position of Adidas AG. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers ShortDAX and Adidas AG.

Diversification Opportunities for Xtrackers ShortDAX and Adidas AG

-0.68

Correlation Coefficient

Xtrackers ShortDAX  Adidas AG

Excellent diversification

The 3 months correlation between Xtrackers and Adidas is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers ShortDAX and adidas AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on adidas AG and Xtrackers ShortDAX 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 Xtrackers ShortDAX are associated (or correlated) with Adidas AG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of adidas AG has no effect on the direction of Xtrackers ShortDAX i.e., Xtrackers ShortDAX and Adidas AG go up and down completely randomly.

Pair Corralation between Xtrackers ShortDAX and Adidas AG

Assuming the 90 days trading horizon Xtrackers ShortDAX is expected to generate 0.65 times more return on investment than Adidas AG. However, Xtrackers ShortDAX is 1.55 times less risky than Adidas AG. It trades about 0.43 of its potential returns per unit of risk. adidas AG is currently generating about -0.15 per unit of risk. If you would invest  76.00  in Xtrackers ShortDAX on October 9, 2024 and sell it today you would earn a total of  4.00  from holding Xtrackers ShortDAX or generate 5.26% return on investment over 90 days.

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

Xtrackers ShortDAX  vs.  adidas AG

Xtrackers ShortDAX

Risk-Adjusted Performance

0 of 100

Very Weak

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

adidas AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days adidas AG has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Adidas AG is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xtrackers ShortDAX and Adidas AG

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

The idea behind Xtrackers ShortDAX and adidas AG 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.