Correlation Between DAX Index and Fortive

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

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

Diversification Opportunities for DAX Index and Fortive

0.66

Correlation Coefficient

DAX Index  Fortive

Poor diversification

The 3 months correlation between DAX and Fortive is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Fortive in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fortive 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 Fortive. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fortive has no effect on the direction of DAX Index i.e., DAX Index and Fortive go up and down completely randomly.

Pair Corralation between DAX Index and Fortive

Assuming the 90 days trading horizon DAX Index is expected to generate 0.58 times more return on investment than Fortive. However, DAX Index is 1.72 times less risky than Fortive. It trades about 0.09 of its potential returns per unit of risk. Fortive is currently generating about 0.04 per unit of risk. If you would invest  1,512,827  in DAX Index on October 22, 2024 and sell it today you would earn a total of  586,204  from holding DAX Index or generate 38.75% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	99.8%
Values	Daily Returns

DAX Index  vs.  Fortive

Pair Trading with DAX Index and Fortive

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

The idea behind DAX Index and Fortive 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 Investing Opportunities module to build portfolios using our predefined set of ideas and optimize them against your investing preferences.