Correlation Between DAX Index and Lundin Energy

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

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

Diversification Opportunities for DAX Index and Lundin Energy

-0.84

Correlation Coefficient

DAX Index  Lundin Energy

Pay attention - limited upside

The 3 months correlation between DAX and Lundin is -0.84. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Lundin Energy AB in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lundin Energy AB 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 Lundin Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lundin Energy AB has no effect on the direction of DAX Index i.e., DAX Index and Lundin Energy go up and down completely randomly.

Pair Corralation between DAX Index and Lundin Energy

Assuming the 90 days trading horizon DAX Index is expected to generate 0.4 times more return on investment than Lundin Energy. However, DAX Index is 2.53 times less risky than Lundin Energy. It trades about 0.19 of its potential returns per unit of risk. Lundin Energy AB is currently generating about -0.19 per unit of risk. If you would invest  1,998,432  in DAX Index on December 27, 2024 and sell it today you would earn a total of  285,471  from holding DAX Index or generate 14.28% return on investment over 90 days.

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

DAX Index  vs.  Lundin Energy AB

Pair Trading with DAX Index and Lundin Energy

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

The idea behind DAX Index and Lundin Energy AB 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.