Correlation Between Xtrackers Low and Xtrackers High

Can any of the company-specific risk be diversified away by investing in both Xtrackers Low and Xtrackers High 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 Xtrackers High 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 Xtrackers High Beta, you can compare the effects of market volatilities on Xtrackers Low and Xtrackers High 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 Xtrackers High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Low and Xtrackers High.

Diversification Opportunities for Xtrackers Low and Xtrackers High

0.83

Correlation Coefficient

Xtrackers Low  Xtrackers High

Very poor diversification

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

Pair Corralation between Xtrackers Low and Xtrackers High

Given the investment horizon of 90 days Xtrackers Low Beta is expected to generate 0.7 times more return on investment than Xtrackers High. However, Xtrackers Low Beta is 1.44 times less risky than Xtrackers High. It trades about 0.13 of its potential returns per unit of risk. Xtrackers High Beta is currently generating about 0.04 per unit of risk. If you would invest  4,561  in Xtrackers Low Beta on December 30, 2024 and sell it today you would earn a total of  76.00  from holding Xtrackers Low Beta or generate 1.67% 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.  Xtrackers High Beta

Xtrackers Low Beta

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Low Beta are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, Xtrackers Low is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Xtrackers High Beta

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers High Beta are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Xtrackers High is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Xtrackers Low and Xtrackers High

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

The idea behind Xtrackers Low Beta and Xtrackers High Beta 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.