Correlation Between DAX Index and Engie SA

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

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

Diversification Opportunities for DAX Index and Engie SA

-0.15

Correlation Coefficient

DAX Index  Engie SA

Good diversification

The 3 months correlation between DAX and Engie is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Engie SA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Engie SA 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 Engie SA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Engie SA has no effect on the direction of DAX Index i.e., DAX Index and Engie SA go up and down completely randomly.

Pair Corralation between DAX Index and Engie SA

Assuming the 90 days trading horizon DAX Index is expected to under-perform the Engie SA. But the index apears to be less risky and, when comparing its historical volatility, DAX Index is 1.49 times less risky than Engie SA. The index trades about -0.04 of its potential returns per unit of risk. The Engie SA is currently generating about 0.32 of returns per unit of risk over similar time horizon. If you would invest  1,495  in Engie SA on October 15, 2024 and sell it today you would earn a total of  76.00  from holding Engie SA or generate 5.08% 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.  Engie SA

Pair Trading with DAX Index and Engie SA

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

The idea behind DAX Index and Engie SA 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.