Correlation Between DAX Index and Sun Art

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

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

Diversification Opportunities for DAX Index and Sun Art

0.8

Correlation Coefficient

DAX Index  Sun Art

Very poor diversification

The 3 months correlation between DAX and Sun is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Sun Art Retail in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Sun Art Retail 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 Sun Art. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Sun Art Retail has no effect on the direction of DAX Index i.e., DAX Index and Sun Art go up and down completely randomly.

Pair Corralation between DAX Index and Sun Art

Assuming the 90 days trading horizon DAX Index is expected to generate 10.84 times less return on investment than Sun Art. But when comparing it to its historical volatility, DAX Index is 5.33 times less risky than Sun Art. It trades about 0.18 of its potential returns per unit of risk. Sun Art Retail is currently generating about 0.37 of returns per unit of risk over similar time horizon. If you would invest  24.00  in Sun Art Retail on September 24, 2024 and sell it today you would earn a total of  7.00  from holding Sun Art Retail or generate 29.17% return on investment over 90 days.

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

DAX Index  vs.  Sun Art Retail

Pair Trading with DAX Index and Sun Art

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

The idea behind DAX Index and Sun Art Retail 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.

Check out your portfolio center.

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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.