Correlation Between Xtrackers International and First Trust

Can any of the company-specific risk be diversified away by investing in both Xtrackers International 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 International 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 International Real and First Trust Emerging, you can compare the effects of market volatilities on Xtrackers International 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 International with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers International and First Trust.

Diversification Opportunities for Xtrackers International and First Trust

0.97

Correlation Coefficient

Xtrackers International  First Trust

Almost no diversification

The 3 months correlation between Xtrackers and First is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers International Real and First Trust Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Emerging and Xtrackers International 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 International Real 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 Emerging has no effect on the direction of Xtrackers International i.e., Xtrackers International and First Trust go up and down completely randomly.

Pair Corralation between Xtrackers International and First Trust

Given the investment horizon of 90 days Xtrackers International Real is expected to under-perform the First Trust. In addition to that, Xtrackers International is 1.49 times more volatile than First Trust Emerging. It trades about -0.01 of its total potential returns per unit of risk. First Trust Emerging is currently generating about 0.02 per unit of volatility. If you would invest  2,488  in First Trust Emerging on October 3, 2024 and sell it today you would earn a total of  138.00  from holding First Trust Emerging or generate 5.55% return on investment over 90 days.

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

Xtrackers International Real  vs.  First Trust Emerging

Xtrackers International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers International Real has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

First Trust Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days First Trust Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Etf's primary indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Xtrackers International and First Trust

The main advantage of trading using opposite Xtrackers International and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers International 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 International Real and First Trust Emerging 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..