Correlation Between VanEck FTSE and ETFS Morningstar

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

By analyzing existing cross correlation between VanEck FTSE China and ETFS Morningstar Global, you can compare the effects of market volatilities on VanEck FTSE and ETFS Morningstar 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 VanEck FTSE with a short position of ETFS Morningstar. Check out your portfolio center. Please also check ongoing floating volatility patterns of VanEck FTSE and ETFS Morningstar.

Diversification Opportunities for VanEck FTSE and ETFS Morningstar

-0.49

Correlation Coefficient

VanEck FTSE  ETFS Morningstar

Very good diversification

The 3 months correlation between VanEck and ETFS is -0.49. Overlapping area represents the amount of risk that can be diversified away by holding VanEck FTSE China and ETFS Morningstar Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETFS Morningstar Global and VanEck FTSE 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 VanEck FTSE China are associated (or correlated) with ETFS Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETFS Morningstar Global has no effect on the direction of VanEck FTSE i.e., VanEck FTSE and ETFS Morningstar go up and down completely randomly.

Pair Corralation between VanEck FTSE and ETFS Morningstar

Assuming the 90 days trading horizon VanEck FTSE China is expected to generate 0.96 times more return on investment than ETFS Morningstar. However, VanEck FTSE China is 1.05 times less risky than ETFS Morningstar. It trades about -0.01 of its potential returns per unit of risk. ETFS Morningstar Global is currently generating about -0.07 per unit of risk. If you would invest  5,910  in VanEck FTSE China on December 30, 2024 and sell it today you would lose (73.00) from holding VanEck FTSE China or give up 1.24% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

VanEck FTSE China  vs.  ETFS Morningstar Global

VanEck FTSE China

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck FTSE China has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, VanEck FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

ETFS Morningstar Global

Risk-Adjusted Performance

Very Weak

Over the last 90 days ETFS Morningstar Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, ETFS Morningstar is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with VanEck FTSE and ETFS Morningstar

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

The idea behind VanEck FTSE China and ETFS Morningstar Global 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.