Correlation Between IShares Nikkei and Deka Deutsche

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

By analyzing existing cross correlation between iShares Nikkei 225 and Deka Deutsche Boerse, you can compare the effects of market volatilities on IShares Nikkei and Deka Deutsche 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 IShares Nikkei with a short position of Deka Deutsche. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Nikkei and Deka Deutsche.

Diversification Opportunities for IShares Nikkei and Deka Deutsche

0.73

Correlation Coefficient

IShares Nikkei  Deka Deutsche

Poor diversification

The 3 months correlation between IShares and Deka is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares Nikkei 225 and Deka Deutsche Boerse in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deka Deutsche Boerse and IShares Nikkei 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 iShares Nikkei 225 are associated (or correlated) with Deka Deutsche. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deka Deutsche Boerse has no effect on the direction of IShares Nikkei i.e., IShares Nikkei and Deka Deutsche go up and down completely randomly.

Pair Corralation between IShares Nikkei and Deka Deutsche

Assuming the 90 days trading horizon iShares Nikkei 225 is expected to under-perform the Deka Deutsche. In addition to that, IShares Nikkei is 3.85 times more volatile than Deka Deutsche Boerse. It trades about -0.08 of its total potential returns per unit of risk. Deka Deutsche Boerse is currently generating about -0.05 per unit of volatility. If you would invest  9,017  in Deka Deutsche Boerse on December 24, 2024 and sell it today you would lose (73.00) from holding Deka Deutsche Boerse or give up 0.81% of portfolio value over 90 days.

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

iShares Nikkei 225  vs.  Deka Deutsche Boerse

iShares Nikkei 225

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Nikkei is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Deka Deutsche Boerse

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares Nikkei and Deka Deutsche

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

The idea behind iShares Nikkei 225 and Deka Deutsche Boerse 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.