Correlation Between DAX Index and GPT

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

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

Diversification Opportunities for DAX Index and GPT

-0.43

Correlation Coefficient

DAX Index  GPT

Very good diversification

The 3 months correlation between DAX and GPT is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and GPT Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GPT Group 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 GPT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GPT Group has no effect on the direction of DAX Index i.e., DAX Index and GPT go up and down completely randomly.

Pair Corralation between DAX Index and GPT

Assuming the 90 days trading horizon DAX Index is expected to generate 0.29 times more return on investment than GPT. However, DAX Index is 3.39 times less risky than GPT. It trades about 0.11 of its potential returns per unit of risk. GPT Group is currently generating about 0.01 per unit of risk. If you would invest  1,925,627  in DAX Index on October 6, 2024 and sell it today you would earn a total of  64,981  from holding DAX Index or generate 3.37% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	97.5%
Values	Daily Returns

DAX Index  vs.  GPT Group

Pair Trading with DAX Index and GPT

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

The idea behind DAX Index and GPT 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.