Correlation Between DAX Index and Deka MDAX

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

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

Diversification Opportunities for DAX Index and Deka MDAX

0.23

Correlation Coefficient

DAX Index  Deka MDAX

Modest diversification

The 3 months correlation between DAX and Deka is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Deka MDAX UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deka MDAX UCITS 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 Deka MDAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deka MDAX UCITS has no effect on the direction of DAX Index i.e., DAX Index and Deka MDAX go up and down completely randomly.

Pair Corralation between DAX Index and Deka MDAX

Assuming the 90 days trading horizon DAX Index is expected to generate 0.8 times more return on investment than Deka MDAX. However, DAX Index is 1.24 times less risky than Deka MDAX. It trades about 0.09 of its potential returns per unit of risk. Deka MDAX UCITS is currently generating about 0.01 per unit of risk. If you would invest  1,392,359  in DAX Index on September 20, 2024 and sell it today you would earn a total of  604,627  from holding DAX Index or generate 43.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

DAX Index  vs.  Deka MDAX UCITS

Pair Trading with DAX Index and Deka MDAX

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

The idea behind DAX Index and Deka MDAX UCITS 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.