Correlation Between DAX Index and IRON ROAD

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

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

Diversification Opportunities for DAX Index and IRON ROAD

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Correlation Coefficient

DAX Index  IRON ROAD

Pay attention - limited upside

The 3 months correlation between DAX and IRON is 0.0. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and IRON ROAD in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IRON ROAD 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 IRON ROAD. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IRON ROAD has no effect on the direction of DAX Index i.e., DAX Index and IRON ROAD go up and down completely randomly.

Pair Corralation between DAX Index and IRON ROAD

If you would invest  1,829,066  in DAX Index on September 27, 2024 and sell it today you would earn a total of  155,811  from holding DAX Index or generate 8.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Flat
Strength	Insignificant
Accuracy	0.0%
Values	Daily Returns

DAX Index  vs.  IRON ROAD

Pair Trading with DAX Index and IRON ROAD

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

The idea behind DAX Index and IRON ROAD 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 Anywhere module to track or share privately all of your investments from the convenience of any device.