Correlation Between DAX Index and National Fuel

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

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

Diversification Opportunities for DAX Index and National Fuel

0.59

Correlation Coefficient

DAX Index  National Fuel

Very weak diversification

The 3 months correlation between DAX and National is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and National Fuel Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on National Fuel Gas 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 National Fuel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of National Fuel Gas has no effect on the direction of DAX Index i.e., DAX Index and National Fuel go up and down completely randomly.

Pair Corralation between DAX Index and National Fuel

Assuming the 90 days trading horizon DAX Index is expected to generate 1.7 times less return on investment than National Fuel. But when comparing it to its historical volatility, DAX Index is 1.47 times less risky than National Fuel. It trades about 0.21 of its potential returns per unit of risk. National Fuel Gas is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  5,700  in National Fuel Gas on December 22, 2024 and sell it today you would earn a total of  1,550  from holding National Fuel Gas or generate 27.19% 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.  National Fuel Gas

Pair Trading with DAX Index and National Fuel

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

The idea behind DAX Index and National Fuel Gas 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.