Correlation Between Xtrackers MSCI and FlexShares International

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

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

Diversification Opportunities for Xtrackers MSCI and FlexShares International

0.98

Correlation Coefficient

Xtrackers MSCI  FlexShares International

Almost no diversification

The 3 months correlation between Xtrackers and FlexShares is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI EAFE and FlexShares International Quali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares International and Xtrackers MSCI 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 MSCI EAFE are associated (or correlated) with FlexShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares International has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and FlexShares International go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and FlexShares International

Given the investment horizon of 90 days Xtrackers MSCI EAFE is expected to generate 0.88 times more return on investment than FlexShares International. However, Xtrackers MSCI EAFE is 1.14 times less risky than FlexShares International. It trades about 0.29 of its potential returns per unit of risk. FlexShares International Quality is currently generating about 0.16 per unit of risk. If you would invest  2,407  in Xtrackers MSCI EAFE on December 30, 2024 and sell it today you would earn a total of  327.00  from holding Xtrackers MSCI EAFE or generate 13.59% return on investment over 90 days.

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

Xtrackers MSCI EAFE  vs.  FlexShares International Quali

Xtrackers MSCI EAFE

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal technical and fundamental indicators, Xtrackers MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

FlexShares International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares International Quality are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady fundamental indicators, FlexShares International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Xtrackers MSCI and FlexShares International

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

The idea behind Xtrackers MSCI EAFE and FlexShares International Quality 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.