Correlation Between CDAX Index and Playtech Plc

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

By analyzing existing cross correlation between CDAX Index and Playtech plc, you can compare the effects of market volatilities on CDAX Index and Playtech Plc 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 CDAX Index with a short position of Playtech Plc. Check out your portfolio center. Please also check ongoing floating volatility patterns of CDAX Index and Playtech Plc.

Diversification Opportunities for CDAX Index and Playtech Plc

0.32

Correlation Coefficient

CDAX Index  Playtech Plc

Weak diversification

The 3 months correlation between CDAX and Playtech is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding CDAX Index and Playtech plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Playtech plc and CDAX 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 CDAX Index are associated (or correlated) with Playtech Plc. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Playtech plc has no effect on the direction of CDAX Index i.e., CDAX Index and Playtech Plc go up and down completely randomly.

Pair Corralation between CDAX Index and Playtech Plc

Assuming the 90 days trading horizon CDAX Index is expected to generate 0.83 times more return on investment than Playtech Plc. However, CDAX Index is 1.21 times less risky than Playtech Plc. It trades about 0.03 of its potential returns per unit of risk. Playtech plc is currently generating about -0.09 per unit of risk. If you would invest  167,518  in CDAX Index on September 28, 2024 and sell it today you would earn a total of  2,342  from holding CDAX Index or generate 1.4% return on investment over 90 days.

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

CDAX Index  vs.  Playtech plc

Pair Trading with CDAX Index and Playtech Plc

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

The idea behind CDAX Index and Playtech plc 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 CEOs Directory module to screen CEOs from public companies around the world.