Correlation Between Xtrackers MSCI and ETF Series

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

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

Diversification Opportunities for Xtrackers MSCI and ETF Series

0.23

Correlation Coefficient

Xtrackers MSCI  ETF Series

Modest diversification

The 3 months correlation between Xtrackers and ETF is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI EAFE and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions and Xtrackers 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 Xtrackers MSCI EAFE are associated (or correlated) with ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and ETF Series go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and ETF Series

Given the investment horizon of 90 days Xtrackers MSCI EAFE is expected to generate 0.75 times more return on investment than ETF Series. However, Xtrackers MSCI EAFE is 1.34 times less risky than ETF Series. It trades about 0.11 of its potential returns per unit of risk. ETF Series Solutions is currently generating about -0.04 per unit of risk. If you would invest  4,146  in Xtrackers MSCI EAFE on October 25, 2024 and sell it today you would earn a total of  160.50  from holding Xtrackers MSCI EAFE or generate 3.87% return on investment over 90 days.

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

Xtrackers MSCI EAFE  vs.  ETF Series Solutions

Xtrackers MSCI EAFE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Xtrackers MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

ETF Series Solutions

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETF Series Solutions has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, ETF Series is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xtrackers MSCI and ETF Series

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

The idea behind Xtrackers MSCI EAFE and ETF Series Solutions 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.