Correlation Between Deutsche Small and Deutsche Equity

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

By analyzing existing cross correlation between Deutsche Small Cap and Deutsche Equity 500, you can compare the effects of market volatilities on Deutsche Small and Deutsche Equity 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 Deutsche Small with a short position of Deutsche Equity. Check out your portfolio center. Please also check ongoing floating volatility patterns of Deutsche Small and Deutsche Equity.

Diversification Opportunities for Deutsche Small and Deutsche Equity

0.91

Correlation Coefficient

Deutsche Small  Deutsche Equity

Almost no diversification

The 3 months correlation between Deutsche and Deutsche is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding Deutsche Small Cap and Deutsche Equity 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Equity 500 and Deutsche Small 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 Deutsche Small Cap are associated (or correlated) with Deutsche Equity. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Equity 500 has no effect on the direction of Deutsche Small i.e., Deutsche Small and Deutsche Equity go up and down completely randomly.

Pair Corralation between Deutsche Small and Deutsche Equity

Assuming the 90 days horizon Deutsche Small is expected to generate 1.74 times less return on investment than Deutsche Equity. In addition to that, Deutsche Small is 1.1 times more volatile than Deutsche Equity 500. It trades about 0.06 of its total potential returns per unit of risk. Deutsche Equity 500 is currently generating about 0.12 per unit of volatility. If you would invest  11,348  in Deutsche Equity 500 on September 12, 2024 and sell it today you would earn a total of  7,006  from holding Deutsche Equity 500 or generate 61.74% return on investment over 90 days.

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

Deutsche Small Cap  vs.  Deutsche Equity 500

Deutsche Small Cap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Small Cap are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak forward indicators, Deutsche Small showed solid returns over the last few months and may actually be approaching a breakup point.

Deutsche Equity 500

Risk-Adjusted Performance

15 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Equity 500 are ranked lower than 15 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Deutsche Equity may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Deutsche Small and Deutsche Equity

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

The idea behind Deutsche Small Cap and Deutsche Equity 500 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.