Correlation Between Xtrackers ShortDAX and Volkswagen

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

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

Diversification Opportunities for Xtrackers ShortDAX and Volkswagen

0.2

Correlation Coefficient

Xtrackers ShortDAX  Volkswagen

Modest diversification

The 3 months correlation between Xtrackers and Volkswagen is 0.2. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers ShortDAX and Volkswagen AG in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Volkswagen AG and Xtrackers ShortDAX 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 ShortDAX are associated (or correlated) with Volkswagen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Volkswagen AG has no effect on the direction of Xtrackers ShortDAX i.e., Xtrackers ShortDAX and Volkswagen go up and down completely randomly.

Pair Corralation between Xtrackers ShortDAX and Volkswagen

Assuming the 90 days trading horizon Xtrackers ShortDAX is expected to generate 0.93 times more return on investment than Volkswagen. However, Xtrackers ShortDAX is 1.07 times less risky than Volkswagen. It trades about -0.06 of its potential returns per unit of risk. Volkswagen AG is currently generating about -0.07 per unit of risk. If you would invest  85.00  in Xtrackers ShortDAX on October 1, 2024 and sell it today you would lose (5.00) from holding Xtrackers ShortDAX or give up 5.88% of portfolio value over 90 days.

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

Xtrackers ShortDAX  vs.  Volkswagen AG

Xtrackers ShortDAX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers ShortDAX has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers ShortDAX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Volkswagen AG

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Volkswagen AG has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Stock's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the firm shareholders.

Pair Trading with Xtrackers ShortDAX and Volkswagen

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

The idea behind Xtrackers ShortDAX and Volkswagen AG 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.