Correlation Between DAX Index and Essex Property

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

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

Diversification Opportunities for DAX Index and Essex Property

0.07

Correlation Coefficient

DAX Index  Essex Property

Significant diversification

The 3 months correlation between DAX and Essex is 0.07. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Essex Property Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Essex Property Trust 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 Essex Property. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Essex Property Trust has no effect on the direction of DAX Index i.e., DAX Index and Essex Property go up and down completely randomly.

Pair Corralation between DAX Index and Essex Property

Assuming the 90 days trading horizon DAX Index is expected to generate 0.59 times more return on investment than Essex Property. However, DAX Index is 1.7 times less risky than Essex Property. It trades about 0.28 of its potential returns per unit of risk. Essex Property Trust is currently generating about 0.07 per unit of risk. If you would invest  2,023,214  in DAX Index on December 4, 2024 and sell it today you would earn a total of  291,488  from holding DAX Index or generate 14.41% return on investment over 90 days.

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

DAX Index  vs.  Essex Property Trust

Pair Trading with DAX Index and Essex Property

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

The idea behind DAX Index and Essex Property Trust 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .