Correlation Between DAX Index and Addus HomeCare

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

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

Diversification Opportunities for DAX Index and Addus HomeCare

0.19

Correlation Coefficient

DAX Index  Addus HomeCare

Average diversification

The 3 months correlation between DAX and Addus is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Addus HomeCare in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Addus HomeCare 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 Addus HomeCare. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Addus HomeCare has no effect on the direction of DAX Index i.e., DAX Index and Addus HomeCare go up and down completely randomly.

Pair Corralation between DAX Index and Addus HomeCare

Assuming the 90 days trading horizon DAX Index is expected to generate 0.37 times more return on investment than Addus HomeCare. However, DAX Index is 2.72 times less risky than Addus HomeCare. It trades about 0.09 of its potential returns per unit of risk. Addus HomeCare is currently generating about -0.02 per unit of risk. If you would invest  1,874,711  in DAX Index on September 3, 2024 and sell it today you would earn a total of  87,934  from holding DAX Index or generate 4.69% return on investment over 90 days.

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

DAX Index  vs.  Addus HomeCare

Pair Trading with DAX Index and Addus HomeCare

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

The idea behind DAX Index and Addus HomeCare 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..