Correlation Between Deka MDAX and Deka STOXX

Can any of the company-specific risk be diversified away by investing in both Deka MDAX 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 MDAX 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 MDAX UCITS and Deka STOXX Europe, you can compare the effects of market volatilities on Deka MDAX 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 MDAX with a short position of Deka STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deka MDAX and Deka STOXX.

Diversification Opportunities for Deka MDAX and Deka STOXX

0.13

Correlation Coefficient

Deka MDAX  Deka STOXX

Average diversification

The 3 months correlation between Deka and Deka is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Deka MDAX UCITS 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 MDAX 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 MDAX UCITS 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 MDAX i.e., Deka MDAX and Deka STOXX go up and down completely randomly.

Pair Corralation between Deka MDAX and Deka STOXX

Assuming the 90 days trading horizon Deka MDAX is expected to generate 3.4 times less return on investment than Deka STOXX. But when comparing it to its historical volatility, Deka MDAX UCITS is 1.11 times less risky than Deka STOXX. It trades about 0.08 of its potential returns per unit of risk. Deka STOXX Europe is currently generating about 0.25 of returns per unit of risk over similar time horizon. If you would invest  2,768  in Deka STOXX Europe on October 23, 2024 and sell it today you would earn a total of  108.00  from holding Deka STOXX Europe or generate 3.9% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	94.12%
Values	Daily Returns

Deka MDAX UCITS  vs.  Deka STOXX Europe

Deka MDAX UCITS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Deka MDAX UCITS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Deka MDAX is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Deka STOXX Europe

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Deka STOXX Europe are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. 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 MDAX and Deka STOXX

The main advantage of trading using opposite Deka MDAX and Deka STOXX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Deka MDAX 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 MDAX UCITS 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.