Correlation Between DAX Index and Tokyu Construction

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

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

Diversification Opportunities for DAX Index and Tokyu Construction

0.47

Correlation Coefficient

DAX Index  Tokyu Construction

Very weak diversification

The 3 months correlation between DAX and Tokyu is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Tokyu Construction Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Tokyu Construction 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 Tokyu Construction. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Tokyu Construction has no effect on the direction of DAX Index i.e., DAX Index and Tokyu Construction go up and down completely randomly.

Pair Corralation between DAX Index and Tokyu Construction

Assuming the 90 days trading horizon DAX Index is expected to under-perform the Tokyu Construction. But the index apears to be less risky and, when comparing its historical volatility, DAX Index is 1.99 times less risky than Tokyu Construction. The index trades about -0.28 of its potential returns per unit of risk. The Tokyu Construction Co is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  426.00  in Tokyu Construction Co on October 6, 2024 and sell it today you would earn a total of  8.00  from holding Tokyu Construction Co or generate 1.88% return on investment over 90 days.

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

DAX Index  vs.  Tokyu Construction Co

Pair Trading with DAX Index and Tokyu Construction

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

The idea behind DAX Index and Tokyu Construction Co 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.