Correlation Between Xtrackers Low and IShares Fallen

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

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

Diversification Opportunities for Xtrackers Low and IShares Fallen

0.83

Correlation Coefficient

Xtrackers Low  IShares Fallen

Very poor diversification

The 3 months correlation between Xtrackers and IShares is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Low Beta and iShares Fallen Angels in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Fallen Angels and Xtrackers Low 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 Low Beta are associated (or correlated) with IShares Fallen. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Fallen Angels has no effect on the direction of Xtrackers Low i.e., Xtrackers Low and IShares Fallen go up and down completely randomly.

Pair Corralation between Xtrackers Low and IShares Fallen

Given the investment horizon of 90 days Xtrackers Low is expected to generate 1.35 times less return on investment than IShares Fallen. But when comparing it to its historical volatility, Xtrackers Low Beta is 1.34 times less risky than IShares Fallen. It trades about 0.15 of its potential returns per unit of risk. iShares Fallen Angels is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,691  in iShares Fallen Angels on September 17, 2024 and sell it today you would earn a total of  18.00  from holding iShares Fallen Angels or generate 0.67% return on investment over 90 days.

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

Xtrackers Low Beta  vs.  iShares Fallen Angels

Xtrackers Low Beta

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers Low Beta has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Xtrackers Low is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Fallen Angels

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Fallen Angels are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, IShares Fallen is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Xtrackers Low and IShares Fallen

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

The idea behind Xtrackers Low Beta and iShares Fallen Angels 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 Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.