Correlation Between IShares SP and Deutsche Bank

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Can any of the company-specific risk be diversified away by investing in both IShares SP and Deutsche Bank 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 IShares SP and Deutsche Bank into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between IShares SP 500 and Deutsche Bank AG, you can compare the effects of market volatilities on IShares SP and Deutsche Bank 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 IShares SP with a short position of Deutsche Bank. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares SP and Deutsche Bank.

Diversification Opportunities for IShares SP and Deutsche Bank

0.75
  Correlation Coefficient

Poor diversification

The 3 months correlation between IShares and Deutsche is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding IShares SP 500 and Deutsche Bank AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Deutsche Bank AG and IShares SP 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 IShares SP 500 are associated (or correlated) with Deutsche Bank. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Deutsche Bank AG has no effect on the direction of IShares SP i.e., IShares SP and Deutsche Bank go up and down completely randomly.

Pair Corralation between IShares SP and Deutsche Bank

Considering the 90-day investment horizon IShares SP is expected to generate 4.04 times less return on investment than Deutsche Bank. But when comparing it to its historical volatility, IShares SP 500 is 2.97 times less risky than Deutsche Bank. It trades about 0.42 of its potential returns per unit of risk. Deutsche Bank AG is currently generating about 0.57 of returns per unit of risk over similar time horizon. If you would invest  1,345  in Deutsche Bank AG on December 29, 2023 and sell it today you would earn a total of  251.00  from holding Deutsche Bank AG or generate 18.66% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

IShares SP 500  vs.  Deutsche Bank AG

 Performance 
       Timeline  
IShares SP 500 

Risk-Adjusted Performance

17 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in IShares SP 500 are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, IShares SP may actually be approaching a critical reversion point that can send shares even higher in April 2024.
Deutsche Bank AG 

Risk-Adjusted Performance

12 of 100

 
Low
 
High
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Deutsche Bank AG are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat abnormal fundamental drivers, Deutsche Bank sustained solid returns over the last few months and may actually be approaching a breakup point.

IShares SP and Deutsche Bank Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with IShares SP and Deutsche Bank

The main advantage of trading using opposite IShares SP and Deutsche Bank positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares SP position performs unexpectedly, Deutsche Bank 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 Bank will offset losses from the drop in Deutsche Bank's long position.
The idea behind IShares SP 500 and Deutsche Bank 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.
Check out your portfolio center.
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 Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.

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