Correlation Between DAX Index and INTERNATIONAL METALS

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

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

Diversification Opportunities for DAX Index and INTERNATIONAL METALS

0.27

Correlation Coefficient

DAX Index  INTERNATIONAL METALS

Modest diversification

The 3 months correlation between DAX and INTERNATIONAL is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and INTERNATIONAL METALS MIN in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on INTERNATIONAL METALS MIN 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 INTERNATIONAL METALS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of INTERNATIONAL METALS MIN has no effect on the direction of DAX Index i.e., DAX Index and INTERNATIONAL METALS go up and down completely randomly.

Pair Corralation between DAX Index and INTERNATIONAL METALS

Assuming the 90 days trading horizon DAX Index is expected to generate 407.65 times less return on investment than INTERNATIONAL METALS. But when comparing it to its historical volatility, DAX Index is 208.6 times less risky than INTERNATIONAL METALS. It trades about 0.09 of its potential returns per unit of risk. INTERNATIONAL METALS MIN is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  8.80  in INTERNATIONAL METALS MIN on September 21, 2024 and sell it today you would lose (7.40) from holding INTERNATIONAL METALS MIN or give up 84.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

DAX Index  vs.  INTERNATIONAL METALS MIN

Pair Trading with DAX Index and INTERNATIONAL METALS

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

The idea behind DAX Index and INTERNATIONAL METALS MIN 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.

Check out your portfolio center.

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 Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..