Correlation Between Xtrackers ShortDAX and BASF SE

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

By analyzing existing cross correlation between Xtrackers ShortDAX and BASF SE, you can compare the effects of market volatilities on Xtrackers ShortDAX and BASF SE 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 Xtrackers ShortDAX with a short position of BASF SE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers ShortDAX and BASF SE.

Diversification Opportunities for Xtrackers ShortDAX and BASF SE

-0.43

Correlation Coefficient

Xtrackers ShortDAX  BASF SE

Very good diversification

The 3 months correlation between Xtrackers and BASF is -0.43. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers ShortDAX and BASF SE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BASF SE and Xtrackers ShortDAX 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 Xtrackers ShortDAX are associated (or correlated) with BASF SE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BASF SE has no effect on the direction of Xtrackers ShortDAX i.e., Xtrackers ShortDAX and BASF SE go up and down completely randomly.

Pair Corralation between Xtrackers ShortDAX and BASF SE

Assuming the 90 days trading horizon Xtrackers ShortDAX is expected to generate 0.56 times more return on investment than BASF SE. However, Xtrackers ShortDAX is 1.78 times less risky than BASF SE. It trades about -0.03 of its potential returns per unit of risk. BASF SE is currently generating about -0.08 per unit of risk. If you would invest  85.00  in Xtrackers ShortDAX on August 31, 2024 and sell it today you would lose (1.00) from holding Xtrackers ShortDAX or give up 1.18% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.65%
Values	Daily Returns

Xtrackers ShortDAX  vs.  BASF SE

Xtrackers ShortDAX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers ShortDAX has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers ShortDAX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

BASF SE

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days BASF SE has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, BASF SE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Xtrackers ShortDAX and BASF SE

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

The idea behind Xtrackers ShortDAX and BASF SE 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 Valuation module to check real value of public entities based on technical and fundamental data.