Correlation Between Lyxor MSCI and Lyxor SP

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

By analyzing existing cross correlation between Lyxor MSCI China and Lyxor SP 500, you can compare the effects of market volatilities on Lyxor MSCI and Lyxor SP 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 Lyxor MSCI with a short position of Lyxor SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lyxor MSCI and Lyxor SP.

Diversification Opportunities for Lyxor MSCI and Lyxor SP

0.01

Correlation Coefficient

Lyxor MSCI  Lyxor SP

Significant diversification

The 3 months correlation between Lyxor and Lyxor is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor MSCI China and Lyxor SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor SP 500 and Lyxor MSCI 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 Lyxor MSCI China are associated (or correlated) with Lyxor SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor SP 500 has no effect on the direction of Lyxor MSCI i.e., Lyxor MSCI and Lyxor SP go up and down completely randomly.

Pair Corralation between Lyxor MSCI and Lyxor SP

Assuming the 90 days trading horizon Lyxor MSCI China is expected to generate 1.22 times more return on investment than Lyxor SP. However, Lyxor MSCI is 1.22 times more volatile than Lyxor SP 500. It trades about 0.13 of its potential returns per unit of risk. Lyxor SP 500 is currently generating about 0.03 per unit of risk. If you would invest  9,063  in Lyxor MSCI China on December 29, 2024 and sell it today you would earn a total of  1,196  from holding Lyxor MSCI China or generate 13.2% return on investment over 90 days.

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

Lyxor MSCI China  vs.  Lyxor SP 500

Lyxor MSCI China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor MSCI China are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak forward indicators, Lyxor MSCI sustained solid returns over the last few months and may actually be approaching a breakup point.

Lyxor SP 500

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor SP 500 are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lyxor SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lyxor MSCI and Lyxor SP

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

The idea behind Lyxor MSCI China and Lyxor SP 500 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.