Correlation Between DAX Index and Sysco

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

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

Diversification Opportunities for DAX Index and Sysco

0.8

Correlation Coefficient

DAX Index  Sysco

Very poor diversification

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

Pair Corralation between DAX Index and Sysco

Assuming the 90 days trading horizon DAX Index is expected to generate 0.5 times more return on investment than Sysco. However, DAX Index is 2.01 times less risky than Sysco. It trades about 0.21 of its potential returns per unit of risk. Sysco is currently generating about 0.09 per unit of risk. If you would invest  1,932,259  in DAX Index on September 23, 2024 and sell it today you would earn a total of  56,216  from holding DAX Index or generate 2.91% 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.  Sysco

Pair Trading with DAX Index and Sysco

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

The idea behind DAX Index and Sysco 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.