Correlation Between DAX Index and Xtrackers

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

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

Diversification Opportunities for DAX Index and Xtrackers

-0.18

Correlation Coefficient

DAX Index  Xtrackers

Good diversification

The 3 months correlation between DAX and Xtrackers is -0.18. Overlapping area represents the amount of risk that can be diversified away by holding DAX Index and Xtrackers II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers II and DAX Index 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 DAX Index are associated (or correlated) with Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers II has no effect on the direction of DAX Index i.e., DAX Index and Xtrackers go up and down completely randomly.

Pair Corralation between DAX Index and Xtrackers

Assuming the 90 days trading horizon DAX Index is expected to generate 1.48 times more return on investment than Xtrackers. However, DAX Index is 1.48 times more volatile than Xtrackers II . It trades about 0.17 of its potential returns per unit of risk. Xtrackers II is currently generating about -0.06 per unit of risk. If you would invest  1,990,914  in DAX Index on December 29, 2024 and sell it today you would earn a total of  255,238  from holding DAX Index or generate 12.82% return on investment over 90 days.

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

DAX Index  vs.  Xtrackers II

Pair Trading with DAX Index and Xtrackers

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

The idea behind DAX Index and Xtrackers II 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 Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .