Correlation Between DAX Index and Waste Management

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

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

Diversification Opportunities for DAX Index and Waste Management

0.7

Correlation Coefficient

DAX Index  Waste Management

Poor diversification

The 3 months correlation between DAX and Waste is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Waste Management in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Waste Management 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 Waste Management. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Waste Management has no effect on the direction of DAX Index i.e., DAX Index and Waste Management go up and down completely randomly.

Pair Corralation between DAX Index and Waste Management

Assuming the 90 days trading horizon DAX Index is expected to generate 0.96 times more return on investment than Waste Management. However, DAX Index is 1.04 times less risky than Waste Management. It trades about 0.17 of its potential returns per unit of risk. Waste Management is currently generating about 0.12 per unit of risk. If you would invest  1,990,914  in DAX Index on December 29, 2024 and sell it today you would earn a total of  255,238  from holding DAX Index or generate 12.82% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

DAX Index  vs.  Waste Management

Pair Trading with DAX Index and Waste Management

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

The idea behind DAX Index and Waste Management 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.