Correlation Between DAX Index and HMS Bergbau

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

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

Diversification Opportunities for DAX Index and HMS Bergbau

0.57

Correlation Coefficient

DAX Index  HMS Bergbau

Very weak diversification

The 3 months correlation between DAX and HMS is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and HMS Bergbau AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HMS Bergbau AG 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 HMS Bergbau. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HMS Bergbau AG has no effect on the direction of DAX Index i.e., DAX Index and HMS Bergbau go up and down completely randomly.

Pair Corralation between DAX Index and HMS Bergbau

Assuming the 90 days trading horizon DAX Index is expected to generate 1.15 times less return on investment than HMS Bergbau. In addition to that, DAX Index is 1.03 times more volatile than HMS Bergbau AG. It trades about 0.09 of its total potential returns per unit of risk. HMS Bergbau AG is currently generating about 0.11 per unit of volatility. If you would invest  1,972  in HMS Bergbau AG on September 24, 2024 and sell it today you would earn a total of  948.00  from holding HMS Bergbau AG or generate 48.07% return on investment over 90 days.

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

DAX Index  vs.  HMS Bergbau AG

Pair Trading with DAX Index and HMS Bergbau

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

The idea behind DAX Index and HMS Bergbau 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.

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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.