Correlation Between DAX Index and Deutsche Telekom

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

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

Diversification Opportunities for DAX Index and Deutsche Telekom

0.69

Correlation Coefficient

DAX Index  Deutsche Telekom

Poor diversification

The 3 months correlation between DAX and Deutsche is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Deutsche Telekom AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Telekom 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 Deutsche Telekom. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Telekom has no effect on the direction of DAX Index i.e., DAX Index and Deutsche Telekom go up and down completely randomly.

Pair Corralation between DAX Index and Deutsche Telekom

Assuming the 90 days trading horizon DAX Index is expected to generate 0.3 times more return on investment than Deutsche Telekom. However, DAX Index is 3.31 times less risky than Deutsche Telekom. It trades about 0.48 of its potential returns per unit of risk. Deutsche Telekom AG is currently generating about 0.11 per unit of risk. If you would invest  1,921,081  in DAX Index on September 16, 2024 and sell it today you would earn a total of  119,511  from holding DAX Index or generate 6.22% return on investment over 90 days.

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

DAX Index  vs.  Deutsche Telekom AG

Pair Trading with DAX Index and Deutsche Telekom

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

The idea behind DAX Index and Deutsche Telekom AG 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.