Correlation Between PayPal Holdings and DAX Midcap

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

By analyzing existing cross correlation between PayPal Holdings and DAX Midcap, you can compare the effects of market volatilities on PayPal Holdings and DAX Midcap 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 PayPal Holdings with a short position of DAX Midcap. Check out your portfolio center. Please also check ongoing floating volatility patterns of PayPal Holdings and DAX Midcap.

Diversification Opportunities for PayPal Holdings and DAX Midcap

0.53

Correlation Coefficient

PayPal Holdings  DAX Midcap

Very weak diversification

The 3 months correlation between PayPal and DAX is 0.53. Overlapping area represents the amount of risk that can be diversified away by holding PayPal Holdings and DAX Midcap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DAX Midcap and PayPal Holdings 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 PayPal Holdings are associated (or correlated) with DAX Midcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DAX Midcap has no effect on the direction of PayPal Holdings i.e., PayPal Holdings and DAX Midcap go up and down completely randomly.

Pair Corralation between PayPal Holdings and DAX Midcap

Given the investment horizon of 90 days PayPal Holdings is expected to generate 2.26 times more return on investment than DAX Midcap. However, PayPal Holdings is 2.26 times more volatile than DAX Midcap. It trades about 0.04 of its potential returns per unit of risk. DAX Midcap is currently generating about 0.02 per unit of risk. If you would invest  6,876  in PayPal Holdings on September 10, 2024 and sell it today you would earn a total of  2,112  from holding PayPal Holdings or generate 30.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.02%
Values	Daily Returns

PayPal Holdings  vs.  DAX Midcap

Pair Trading with PayPal Holdings and DAX Midcap

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

The idea behind PayPal Holdings and DAX Midcap 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.