Correlation Between DAX Index and Minerals Technologies

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

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

Diversification Opportunities for DAX Index and Minerals Technologies

-0.77

Correlation Coefficient

DAX Index  Minerals Technologies

Pay attention - limited upside

The 3 months correlation between DAX and Minerals is -0.77. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Minerals Technologies in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Minerals Technologies 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 Minerals Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Minerals Technologies has no effect on the direction of DAX Index i.e., DAX Index and Minerals Technologies go up and down completely randomly.

Pair Corralation between DAX Index and Minerals Technologies

Assuming the 90 days trading horizon DAX Index is expected to generate 0.79 times more return on investment than Minerals Technologies. However, DAX Index is 1.26 times less risky than Minerals Technologies. It trades about 0.21 of its potential returns per unit of risk. Minerals Technologies is currently generating about -0.19 per unit of risk. If you would invest  1,984,877  in DAX Index on December 23, 2024 and sell it today you would earn a total of  304,291  from holding DAX Index or generate 15.33% return on investment over 90 days.

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

DAX Index  vs.  Minerals Technologies

Pair Trading with DAX Index and Minerals Technologies

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

The idea behind DAX Index and Minerals Technologies 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.