Correlation Between FlexShares International and Xtrackers MSCI

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

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

Diversification Opportunities for FlexShares International and Xtrackers MSCI

0.98

Correlation Coefficient

FlexShares International  Xtrackers MSCI

Almost no diversification

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

Pair Corralation between FlexShares International and Xtrackers MSCI

Given the investment horizon of 90 days FlexShares International is expected to generate 1.6 times less return on investment than Xtrackers MSCI. In addition to that, FlexShares International is 1.13 times more volatile than Xtrackers MSCI EAFE. It trades about 0.16 of its total potential returns per unit of risk. Xtrackers MSCI EAFE is currently generating about 0.3 per unit of volatility. If you would invest  2,407  in Xtrackers MSCI EAFE on December 28, 2024 and sell it today you would earn a total of  326.00  from holding Xtrackers MSCI EAFE or generate 13.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

FlexShares International Quali  vs.  Xtrackers MSCI EAFE

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.

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.

Pair Trading with FlexShares International and Xtrackers MSCI

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

The idea behind FlexShares International Quality and Xtrackers MSCI EAFE 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.