Correlation Between DAX Index and Nippon Yusen

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

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

Diversification Opportunities for DAX Index and Nippon Yusen

0.52

Correlation Coefficient

DAX Index  Nippon Yusen

Very weak diversification

The 3 months correlation between DAX and Nippon is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Nippon Yusen Kabushiki in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nippon Yusen Kabushiki 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 Nippon Yusen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nippon Yusen Kabushiki has no effect on the direction of DAX Index i.e., DAX Index and Nippon Yusen go up and down completely randomly.

Pair Corralation between DAX Index and Nippon Yusen

Assuming the 90 days trading horizon DAX Index is expected to generate 0.29 times more return on investment than Nippon Yusen. However, DAX Index is 3.39 times less risky than Nippon Yusen. It trades about -0.04 of its potential returns per unit of risk. Nippon Yusen Kabushiki is currently generating about -0.09 per unit of risk. If you would invest  2,031,381  in DAX Index on October 15, 2024 and sell it today you would lose (9,902) from holding DAX Index or give up 0.49% of portfolio value over 90 days.

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

DAX Index  vs.  Nippon Yusen Kabushiki

Pair Trading with DAX Index and Nippon Yusen

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

The idea behind DAX Index and Nippon Yusen Kabushiki 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.