Correlation Between DAX Index and MOWI ASA

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

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

Diversification Opportunities for DAX Index and MOWI ASA

0.68

Correlation Coefficient

DAX Index  MOWI ASA

Poor diversification

The 3 months correlation between DAX and MOWI is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and MOWI ASA SPADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MOWI ASA SPADR 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 MOWI ASA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MOWI ASA SPADR has no effect on the direction of DAX Index i.e., DAX Index and MOWI ASA go up and down completely randomly.

Pair Corralation between DAX Index and MOWI ASA

Assuming the 90 days trading horizon DAX Index is expected to generate 0.5 times more return on investment than MOWI ASA. However, DAX Index is 2.02 times less risky than MOWI ASA. It trades about 0.11 of its potential returns per unit of risk. MOWI ASA SPADR is currently generating about 0.02 per unit of risk. If you would invest  1,599,267  in DAX Index on September 23, 2024 and sell it today you would earn a total of  389,208  from holding DAX Index or generate 24.34% return on investment over 90 days.

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

DAX Index  vs.  MOWI ASA SPADR

Pair Trading with DAX Index and MOWI ASA

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

The idea behind DAX Index and MOWI ASA SPADR 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.