Correlation Between ALM Offensif and Xtrackers LevDAX

Can any of the company-specific risk be diversified away by investing in both ALM Offensif and Xtrackers LevDAX 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 ALM Offensif and Xtrackers LevDAX into the same portfolio, which is an essential part of the fundamental portfolio management process.

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

Diversification Opportunities for ALM Offensif and Xtrackers LevDAX

0.7

Correlation Coefficient

ALM Offensif  Xtrackers LevDAX

Poor diversification

The 3 months correlation between ALM and Xtrackers is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding ALM Offensif and Xtrackers LevDAX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers LevDAX and ALM Offensif 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 ALM Offensif are associated (or correlated) with Xtrackers LevDAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers LevDAX has no effect on the direction of ALM Offensif i.e., ALM Offensif and Xtrackers LevDAX go up and down completely randomly.

Pair Corralation between ALM Offensif and Xtrackers LevDAX

Assuming the 90 days trading horizon ALM Offensif is expected to generate 11.28 times less return on investment than Xtrackers LevDAX. But when comparing it to its historical volatility, ALM Offensif is 5.86 times less risky than Xtrackers LevDAX. It trades about 0.1 of its potential returns per unit of risk. Xtrackers LevDAX is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  18,422  in Xtrackers LevDAX on September 23, 2024 and sell it today you would earn a total of  1,583  from holding Xtrackers LevDAX or generate 8.59% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	90.91%
Values	Daily Returns

ALM Offensif  vs.  Xtrackers LevDAX

ALM Offensif

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in ALM Offensif are ranked lower than 12 (%) of all funds and portfolios of funds over the last 90 days. Despite somewhat strong basic indicators, ALM Offensif is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xtrackers LevDAX

Risk-Adjusted Performance

6 of 100

OK

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

Pair Trading with ALM Offensif and Xtrackers LevDAX

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

The idea behind ALM Offensif and Xtrackers LevDAX 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.