Correlation Between DAX Index and Chevron

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

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

Diversification Opportunities for DAX Index and Chevron

0.27

Correlation Coefficient

DAX Index  Chevron

Modest diversification

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

Pair Corralation between DAX Index and Chevron

Assuming the 90 days trading horizon DAX Index is expected to generate 0.53 times more return on investment than Chevron. However, DAX Index is 1.88 times less risky than Chevron. It trades about 0.11 of its potential returns per unit of risk. Chevron is currently generating about 0.01 per unit of risk. If you would invest  1,546,001  in DAX Index on October 5, 2024 and sell it today you would earn a total of  444,607  from holding DAX Index or generate 28.76% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.68%
Values	Daily Returns

DAX Index  vs.  Chevron

Pair Trading with DAX Index and Chevron

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

The idea behind DAX Index and Chevron 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.