Correlation Between Xtrackers MSCI and First Trust

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

By analyzing existing cross correlation between Xtrackers MSCI Europe and First Trust Eurozone, you can compare the effects of market volatilities on Xtrackers MSCI and First Trust 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 First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers MSCI and First Trust.

Diversification Opportunities for Xtrackers MSCI and First Trust

0.74

Correlation Coefficient

Xtrackers MSCI  First Trust

Poor diversification

The 3 months correlation between Xtrackers and First is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI Europe and First Trust Eurozone in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Eurozone 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 Europe are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Eurozone has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and First Trust go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and First Trust

Given the investment horizon of 90 days Xtrackers MSCI Europe is expected to generate 0.65 times more return on investment than First Trust. However, Xtrackers MSCI Europe is 1.53 times less risky than First Trust. It trades about 0.03 of its potential returns per unit of risk. First Trust Eurozone is currently generating about 0.0 per unit of risk. If you would invest  4,157  in Xtrackers MSCI Europe on September 12, 2024 and sell it today you would earn a total of  51.00  from holding Xtrackers MSCI Europe or generate 1.23% return on investment over 90 days.

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

Xtrackers MSCI Europe  vs.  First Trust Eurozone

Xtrackers MSCI Europe

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI Europe are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Xtrackers MSCI is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

First Trust Eurozone

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Xtrackers MSCI and First Trust

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

The idea behind Xtrackers MSCI Europe and First Trust Eurozone 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 Portfolio Manager module to state of the art Portfolio Manager to monitor and improve performance of your invested capital.