Correlation Between Daimler Truck and Traton SE

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

By analyzing existing cross correlation between Daimler Truck Holding and Traton SE, you can compare the effects of market volatilities on Daimler Truck and Traton SE 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 Daimler Truck with a short position of Traton SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Daimler Truck and Traton SE.

Diversification Opportunities for Daimler Truck and Traton SE

0.65

Correlation Coefficient

Daimler Truck  Traton SE

Poor diversification

The 3 months correlation between Daimler and Traton is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Daimler Truck Holding and Traton SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Traton SE and Daimler Truck 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 Daimler Truck Holding are associated (or correlated) with Traton SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Traton SE has no effect on the direction of Daimler Truck i.e., Daimler Truck and Traton SE go up and down completely randomly.

Pair Corralation between Daimler Truck and Traton SE

Assuming the 90 days trading horizon Daimler Truck Holding is expected to under-perform the Traton SE. But the stock apears to be less risky and, when comparing its historical volatility, Daimler Truck Holding is 1.06 times less risky than Traton SE. The stock trades about -0.04 of its potential returns per unit of risk. The Traton SE is currently generating about 0.45 of returns per unit of risk over similar time horizon. If you would invest  3,030  in Traton SE on December 1, 2024 and sell it today you would earn a total of  600.00  from holding Traton SE or generate 19.8% return on investment over 90 days.

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

Daimler Truck Holding  vs.  Traton SE

Daimler Truck Holding

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Daimler Truck Holding are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively fragile technical and fundamental indicators, Daimler Truck unveiled solid returns over the last few months and may actually be approaching a breakup point.

Traton SE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Traton SE are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, Traton SE exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Daimler Truck and Traton SE

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

The idea behind Daimler Truck Holding and Traton SE 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.