Correlation Between DAX Index and First Quantum

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

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

Diversification Opportunities for DAX Index and First Quantum

0.62

Correlation Coefficient

DAX Index  First Quantum

Poor diversification

The 3 months correlation between DAX and First is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and First Quantum Minerals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Quantum Minerals 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 First Quantum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Quantum Minerals has no effect on the direction of DAX Index i.e., DAX Index and First Quantum go up and down completely randomly.

Pair Corralation between DAX Index and First Quantum

Assuming the 90 days trading horizon DAX Index is expected to generate 1.69 times less return on investment than First Quantum. But when comparing it to its historical volatility, DAX Index is 3.85 times less risky than First Quantum. It trades about 0.13 of its potential returns per unit of risk. First Quantum Minerals is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,133  in First Quantum Minerals on September 19, 2024 and sell it today you would earn a total of  99.00  from holding First Quantum Minerals or generate 8.74% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

DAX Index  vs.  First Quantum Minerals

Pair Trading with DAX Index and First Quantum

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

The idea behind DAX Index and First Quantum Minerals 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 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.