Correlation Between Xtrackers and Xtrackers FTSE

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

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

Diversification Opportunities for Xtrackers and Xtrackers FTSE

0.64

Correlation Coefficient

Xtrackers  Xtrackers FTSE

Poor diversification

The 3 months correlation between Xtrackers and Xtrackers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers SP and Xtrackers FTSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers FTSE and Xtrackers 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 SP are associated (or correlated) with Xtrackers FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers FTSE has no effect on the direction of Xtrackers i.e., Xtrackers and Xtrackers FTSE go up and down completely randomly.

Pair Corralation between Xtrackers and Xtrackers FTSE

Assuming the 90 days trading horizon Xtrackers SP is expected to generate 2.2 times more return on investment than Xtrackers FTSE. However, Xtrackers is 2.2 times more volatile than Xtrackers FTSE. It trades about 0.12 of its potential returns per unit of risk. Xtrackers FTSE is currently generating about 0.02 per unit of risk. If you would invest  14,642  in Xtrackers SP on October 5, 2024 and sell it today you would earn a total of  7,703  from holding Xtrackers SP or generate 52.61% return on investment over 90 days.

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

Xtrackers SP  vs.  Xtrackers FTSE

Xtrackers SP

Risk-Adjusted Performance

0 of 100

OK

Over the last 90 days Xtrackers SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly unsteady basic indicators, Xtrackers may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Xtrackers FTSE

Risk-Adjusted Performance

0 of 100

OK

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

Pair Trading with Xtrackers and Xtrackers FTSE

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

The idea behind Xtrackers SP and Xtrackers FTSE 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.