Correlation Between DAX Index and FORTEC Elektronik

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

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

Diversification Opportunities for DAX Index and FORTEC Elektronik

0.27

Correlation Coefficient

DAX Index  FORTEC Elektronik

Modest diversification

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

Pair Corralation between DAX Index and FORTEC Elektronik

Assuming the 90 days trading horizon DAX Index is expected to generate 0.33 times more return on investment than FORTEC Elektronik. However, DAX Index is 3.01 times less risky than FORTEC Elektronik. It trades about 0.13 of its potential returns per unit of risk. FORTEC Elektronik AG is currently generating about 0.04 per unit of risk. If you would invest  1,906,647  in DAX Index on October 8, 2024 and sell it today you would earn a total of  114,972  from holding DAX Index or generate 6.03% 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.  FORTEC Elektronik AG

Pair Trading with DAX Index and FORTEC Elektronik

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

The idea behind DAX Index and FORTEC Elektronik AG 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.