Correlation Between DAX Index and CIA ENGER

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

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

Diversification Opportunities for DAX Index and CIA ENGER

0.18

Correlation Coefficient

DAX Index  CIA ENGER

Average diversification

The 3 months correlation between DAX and CIA is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and CIA ENGER ADR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on CIA ENGER ADR 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 CIA ENGER. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of CIA ENGER ADR has no effect on the direction of DAX Index i.e., DAX Index and CIA ENGER go up and down completely randomly.

Pair Corralation between DAX Index and CIA ENGER

Assuming the 90 days trading horizon DAX Index is expected to generate 3.02 times less return on investment than CIA ENGER. But when comparing it to its historical volatility, DAX Index is 6.03 times less risky than CIA ENGER. It trades about 0.11 of its potential returns per unit of risk. CIA ENGER ADR is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  140.00  in CIA ENGER ADR on September 23, 2024 and sell it today you would earn a total of  74.00  from holding CIA ENGER ADR or generate 52.86% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.64%
Values	Daily Returns

DAX Index  vs.  CIA ENGER ADR

Pair Trading with DAX Index and CIA ENGER

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

The idea behind DAX Index and CIA ENGER 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.