Correlation Between Deka MSCI and Deka EURO

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

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

Diversification Opportunities for Deka MSCI and Deka EURO

0.09

Correlation Coefficient

Deka MSCI  Deka EURO

Significant diversification

The 3 months correlation between Deka and Deka is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Deka MSCI World and Deka EURO STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deka EURO STOXX and Deka MSCI 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 MSCI World are associated (or correlated) with Deka EURO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deka EURO STOXX has no effect on the direction of Deka MSCI i.e., Deka MSCI and Deka EURO go up and down completely randomly.

Pair Corralation between Deka MSCI and Deka EURO

Assuming the 90 days trading horizon Deka MSCI World is expected to under-perform the Deka EURO. In addition to that, Deka MSCI is 1.73 times more volatile than Deka EURO STOXX. It trades about -0.44 of its total potential returns per unit of risk. Deka EURO STOXX is currently generating about 0.64 per unit of volatility. If you would invest  1,754  in Deka EURO STOXX on December 10, 2024 and sell it today you would earn a total of  140.00  from holding Deka EURO STOXX or generate 7.98% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Deka MSCI World  vs.  Deka EURO STOXX

Deka MSCI World

Risk-Adjusted Performance

Very Weak

Over the last 90 days Deka MSCI World has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Etf's technical and fundamental indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Deka EURO STOXX

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Deka EURO STOXX are ranked lower than 29 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Deka EURO reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Deka MSCI and Deka EURO

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

The idea behind Deka MSCI World and Deka EURO STOXX 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.