Correlation Between DAX Index and ENN ENERGY

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

By analyzing existing cross correlation between DAX Index and ENN ENERGY HLDUNSADR25, you can compare the effects of market volatilities on DAX Index and ENN ENERGY 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 ENN ENERGY. Check out your portfolio center. Please also check ongoing floating volatility patterns of DAX Index and ENN ENERGY.

Diversification Opportunities for DAX Index and ENN ENERGY

0.58

Correlation Coefficient

DAX Index  ENN ENERGY

Very weak diversification

The 3 months correlation between DAX and ENN is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and ENN ENERGY HLDUNSADR25 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ENN ENERGY HLDUNSADR25 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 ENN ENERGY. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ENN ENERGY HLDUNSADR25 has no effect on the direction of DAX Index i.e., DAX Index and ENN ENERGY go up and down completely randomly.

Pair Corralation between DAX Index and ENN ENERGY

Assuming the 90 days trading horizon DAX Index is expected to generate 0.34 times more return on investment than ENN ENERGY. However, DAX Index is 2.98 times less risky than ENN ENERGY. It trades about 0.2 of its potential returns per unit of risk. ENN ENERGY HLDUNSADR25 is currently generating about 0.0 per unit of risk. If you would invest  1,953,162  in DAX Index on October 26, 2024 and sell it today you would earn a total of  187,991  from holding DAX Index or generate 9.62% 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.  ENN ENERGY HLDUNSADR25

Pair Trading with DAX Index and ENN ENERGY

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

The idea behind DAX Index and ENN ENERGY HLDUNSADR25 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.