Correlation Between Deka IBoxx and Deka STOXX

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

By analyzing existing cross correlation between Deka iBoxx EUR and Deka STOXX Europe, you can compare the effects of market volatilities on Deka IBoxx and Deka STOXX 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 Deka IBoxx with a short position of Deka STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deka IBoxx and Deka STOXX.

Diversification Opportunities for Deka IBoxx and Deka STOXX

0.52

Correlation Coefficient

Deka IBoxx  Deka STOXX

Very weak diversification

The 3 months correlation between Deka and Deka is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Deka iBoxx EUR and Deka STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deka STOXX Europe and Deka IBoxx 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 Deka iBoxx EUR are associated (or correlated) with Deka STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deka STOXX Europe has no effect on the direction of Deka IBoxx i.e., Deka IBoxx and Deka STOXX go up and down completely randomly.

Pair Corralation between Deka IBoxx and Deka STOXX

Assuming the 90 days trading horizon Deka iBoxx EUR is expected to generate 0.24 times more return on investment than Deka STOXX. However, Deka iBoxx EUR is 4.23 times less risky than Deka STOXX. It trades about -0.52 of its potential returns per unit of risk. Deka STOXX Europe is currently generating about -0.25 per unit of risk. If you would invest  10,028  in Deka iBoxx EUR on October 9, 2024 and sell it today you would lose (187.00) from holding Deka iBoxx EUR or give up 1.86% of portfolio value over 90 days.

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

Deka iBoxx EUR  vs.  Deka STOXX Europe

Deka iBoxx EUR

Risk-Adjusted Performance

0 of 100

Insignificant

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

Deka STOXX Europe

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Deka IBoxx and Deka STOXX

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

The idea behind Deka iBoxx EUR and Deka STOXX Europe 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.