Correlation Between London Stock and Deutsche Brse

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

By analyzing existing cross correlation between London Stock Exchange and Deutsche Brse AG, you can compare the effects of market volatilities on London Stock and Deutsche Brse 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 London Stock with a short position of Deutsche Brse. Check out your portfolio center. Please also check ongoing floating volatility patterns of London Stock and Deutsche Brse.

Diversification Opportunities for London Stock and Deutsche Brse

0.8

Correlation Coefficient

London Stock  Deutsche Brse

Very poor diversification

The 3 months correlation between London and Deutsche is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding London Stock Exchange and Deutsche Brse AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Brse AG and London Stock 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 London Stock Exchange are associated (or correlated) with Deutsche Brse. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Brse AG has no effect on the direction of London Stock i.e., London Stock and Deutsche Brse go up and down completely randomly.

Pair Corralation between London Stock and Deutsche Brse

Assuming the 90 days trading horizon London Stock is expected to generate 3.23 times less return on investment than Deutsche Brse. In addition to that, London Stock is 2.51 times more volatile than Deutsche Brse AG. It trades about 0.03 of its total potential returns per unit of risk. Deutsche Brse AG is currently generating about 0.23 per unit of volatility. If you would invest  21,510  in Deutsche Brse AG on September 27, 2024 and sell it today you would earn a total of  730.00  from holding Deutsche Brse AG or generate 3.39% return on investment over 90 days.

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

London Stock Exchange  vs.  Deutsche Brse AG

London Stock Exchange

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in London Stock Exchange are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, London Stock may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Deutsche Brse AG

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Brse AG are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Deutsche Brse is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with London Stock and Deutsche Brse

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

The idea behind London Stock Exchange and Deutsche Brse 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.