Correlation Between DAX Index and ImagineAR

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

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

Diversification Opportunities for DAX Index and ImagineAR

-0.31

Correlation Coefficient

DAX Index  ImagineAR

Very good diversification

The 3 months correlation between DAX and ImagineAR is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and ImagineAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ImagineAR 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 ImagineAR. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ImagineAR has no effect on the direction of DAX Index i.e., DAX Index and ImagineAR go up and down completely randomly.

Pair Corralation between DAX Index and ImagineAR

Assuming the 90 days trading horizon DAX Index is expected to generate 11.22 times less return on investment than ImagineAR. But when comparing it to its historical volatility, DAX Index is 15.34 times less risky than ImagineAR. It trades about 0.09 of its potential returns per unit of risk. ImagineAR is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  2.15  in ImagineAR on September 23, 2024 and sell it today you would earn a total of  2.15  from holding ImagineAR or generate 100.0% return on investment over 90 days.

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

DAX Index  vs.  ImagineAR

Pair Trading with DAX Index and ImagineAR

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

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