Correlation Between DAX Index and Greenland Hong

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

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

Diversification Opportunities for DAX Index and Greenland Hong

-0.51

Correlation Coefficient

DAX Index  Greenland Hong

Excellent diversification

The 3 months correlation between DAX and Greenland is -0.51. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Greenland Hong Kong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Greenland Hong Kong 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 Greenland Hong. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Greenland Hong Kong has no effect on the direction of DAX Index i.e., DAX Index and Greenland Hong go up and down completely randomly.

Pair Corralation between DAX Index and Greenland Hong

Assuming the 90 days trading horizon DAX Index is expected to generate 0.4 times more return on investment than Greenland Hong. However, DAX Index is 2.53 times less risky than Greenland Hong. It trades about -0.09 of its potential returns per unit of risk. Greenland Hong Kong is currently generating about -0.22 per unit of risk. If you would invest  2,314,702  in DAX Index on December 31, 2024 and sell it today you would lose (68,550) from holding DAX Index or give up 2.96% of portfolio value over 90 days.

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

DAX Index  vs.  Greenland Hong Kong

Pair Trading with DAX Index and Greenland Hong

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

The idea behind DAX Index and Greenland Hong Kong 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.