Correlation Between DAX Index and CGN NEW

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

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

Diversification Opportunities for DAX Index and CGN NEW

0.01

Correlation Coefficient

DAX Index  CGN NEW

Significant diversification

The 3 months correlation between DAX and CGN is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and CGN NEW ENERGY in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CGN NEW ENERGY 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 CGN NEW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CGN NEW ENERGY has no effect on the direction of DAX Index i.e., DAX Index and CGN NEW go up and down completely randomly.

Pair Corralation between DAX Index and CGN NEW

Assuming the 90 days trading horizon DAX Index is expected to generate 0.53 times more return on investment than CGN NEW. However, DAX Index is 1.9 times less risky than CGN NEW. It trades about 0.24 of its potential returns per unit of risk. CGN NEW ENERGY is currently generating about -0.02 per unit of risk. If you would invest  1,988,475  in DAX Index on December 20, 2024 and sell it today you would earn a total of  340,331  from holding DAX Index or generate 17.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

DAX Index  vs.  CGN NEW ENERGY

Pair Trading with DAX Index and CGN NEW

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

The idea behind DAX Index and CGN NEW ENERGY 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..