Correlation Between VanEck Defense and Xtrackers MSCI

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

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

Diversification Opportunities for VanEck Defense and Xtrackers MSCI

0.8

Correlation Coefficient

VanEck Defense  Xtrackers MSCI

Very poor diversification

The 3 months correlation between VanEck and Xtrackers is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Defense ETF and Xtrackers MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI World and VanEck Defense 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 Defense ETF are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI World has no effect on the direction of VanEck Defense i.e., VanEck Defense and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between VanEck Defense and Xtrackers MSCI

Assuming the 90 days trading horizon VanEck Defense ETF is expected to under-perform the Xtrackers MSCI. But the etf apears to be less risky and, when comparing its historical volatility, VanEck Defense ETF is 1.07 times less risky than Xtrackers MSCI. The etf trades about -0.19 of its potential returns per unit of risk. The Xtrackers MSCI World is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  9,021  in Xtrackers MSCI World on September 23, 2024 and sell it today you would earn a total of  245.00  from holding Xtrackers MSCI World or generate 2.72% return on investment over 90 days.

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

VanEck Defense ETF  vs.  Xtrackers MSCI World

VanEck Defense ETF

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Defense ETF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, VanEck Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xtrackers MSCI World

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI World are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xtrackers MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with VanEck Defense and Xtrackers MSCI

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

The idea behind VanEck Defense ETF and Xtrackers MSCI World 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.