Correlation Between Dixons Carphone and Ceconomy

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

By analyzing existing cross correlation between Dixons Carphone plc and Ceconomy AG ADR, you can compare the effects of market volatilities on Dixons Carphone and Ceconomy 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 Dixons Carphone with a short position of Ceconomy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Dixons Carphone and Ceconomy.

Diversification Opportunities for Dixons Carphone and Ceconomy

0.44

Correlation Coefficient

Dixons Carphone  Ceconomy

Very weak diversification

The 3 months correlation between Dixons and Ceconomy is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Dixons Carphone plc and Ceconomy AG ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ceconomy AG ADR and Dixons Carphone 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 Dixons Carphone plc are associated (or correlated) with Ceconomy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ceconomy AG ADR has no effect on the direction of Dixons Carphone i.e., Dixons Carphone and Ceconomy go up and down completely randomly.

Pair Corralation between Dixons Carphone and Ceconomy

Assuming the 90 days horizon Dixons Carphone is expected to generate 1.6 times less return on investment than Ceconomy. But when comparing it to its historical volatility, Dixons Carphone plc is 1.76 times less risky than Ceconomy. It trades about 0.05 of its potential returns per unit of risk. Ceconomy AG ADR is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  35.00  in Ceconomy AG ADR on September 14, 2024 and sell it today you would earn a total of  26.00  from holding Ceconomy AG ADR or generate 74.29% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	99.8%
Values	Daily Returns

Dixons Carphone plc  vs.  Ceconomy AG ADR

Dixons Carphone plc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Dixons Carphone plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly weak basic indicators, Dixons Carphone reported solid returns over the last few months and may actually be approaching a breakup point.

Ceconomy AG ADR

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Ceconomy AG ADR are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, Ceconomy showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Dixons Carphone and Ceconomy

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

The idea behind Dixons Carphone plc and Ceconomy AG ADR 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.