Correlation Between DAX Index and ITV Dusseldorf

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

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

Diversification Opportunities for DAX Index and ITV Dusseldorf

0.3

Correlation Coefficient

DAX Index  ITV Dusseldorf

Weak diversification

The 3 months correlation between DAX and ITV is 0.3. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and ITV Dusseldorf in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ITV Dusseldorf 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 ITV Dusseldorf. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ITV Dusseldorf has no effect on the direction of DAX Index i.e., DAX Index and ITV Dusseldorf go up and down completely randomly.

Pair Corralation between DAX Index and ITV Dusseldorf

Assuming the 90 days trading horizon DAX Index is expected to generate 0.41 times more return on investment than ITV Dusseldorf. However, DAX Index is 2.46 times less risky than ITV Dusseldorf. It trades about 0.09 of its potential returns per unit of risk. ITV Dusseldorf is currently generating about 0.01 per unit of risk. If you would invest  1,547,643  in DAX Index on October 25, 2024 and sell it today you would earn a total of  577,784  from holding DAX Index or generate 37.33% return on investment over 90 days.

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

DAX Index  vs.  ITV Dusseldorf

Pair Trading with DAX Index and ITV Dusseldorf

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

The idea behind DAX Index and ITV Dusseldorf 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.