Correlation Between DAX Index and Canadian Natural

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

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

Diversification Opportunities for DAX Index and Canadian Natural

-0.54

Correlation Coefficient

DAX Index  Canadian Natural

Excellent diversification

The 3 months correlation between DAX and Canadian is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Canadian Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Canadian Natural Res 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 Canadian Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Canadian Natural Res has no effect on the direction of DAX Index i.e., DAX Index and Canadian Natural go up and down completely randomly.

Pair Corralation between DAX Index and Canadian Natural

Assuming the 90 days trading horizon DAX Index is expected to generate 1.25 times less return on investment than Canadian Natural. But when comparing it to its historical volatility, DAX Index is 2.36 times less risky than Canadian Natural. It trades about 0.08 of its potential returns per unit of risk. Canadian Natural Resources is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  2,281  in Canadian Natural Resources on October 5, 2024 and sell it today you would earn a total of  749.00  from holding Canadian Natural Resources or generate 32.84% return on investment over 90 days.

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

DAX Index  vs.  Canadian Natural Resources

Pair Trading with DAX Index and Canadian Natural

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

The idea behind DAX Index and Canadian Natural Resources 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.