Correlation Between DAX Index and Citizens Financial

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

By analyzing existing cross correlation between DAX Index and Citizens Financial Group, you can compare the effects of market volatilities on DAX Index and Citizens Financial 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 DAX Index with a short position of Citizens Financial. Check out your portfolio center. Please also check ongoing floating volatility patterns of DAX Index and Citizens Financial.

Diversification Opportunities for DAX Index and Citizens Financial

0.49

Correlation Coefficient

DAX Index  Citizens Financial

Very weak diversification

The 3 months correlation between DAX and Citizens is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Citizens Financial Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Citizens Financial and DAX Index 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 DAX Index are associated (or correlated) with Citizens Financial. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Citizens Financial has no effect on the direction of DAX Index i.e., DAX Index and Citizens Financial go up and down completely randomly.

Pair Corralation between DAX Index and Citizens Financial

Assuming the 90 days trading horizon DAX Index is expected to generate 1.03 times less return on investment than Citizens Financial. But when comparing it to its historical volatility, DAX Index is 2.82 times less risky than Citizens Financial. It trades about 0.08 of its potential returns per unit of risk. Citizens Financial Group is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  3,354  in Citizens Financial Group on September 25, 2024 and sell it today you would earn a total of  816.00  from holding Citizens Financial Group or generate 24.33% return on investment over 90 days.

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

DAX Index  vs.  Citizens Financial Group

Pair Trading with DAX Index and Citizens Financial

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

The idea behind DAX Index and Citizens Financial Group 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.