Correlation Between IShares Developed and Lyxor Japan

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

By analyzing existing cross correlation between iShares Developed Markets and Lyxor Japan UCITS, you can compare the effects of market volatilities on IShares Developed and Lyxor Japan 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 IShares Developed with a short position of Lyxor Japan. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Developed and Lyxor Japan.

Diversification Opportunities for IShares Developed and Lyxor Japan

-0.64

Correlation Coefficient

IShares Developed  Lyxor Japan

Excellent diversification

The 3 months correlation between IShares and Lyxor is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding iShares Developed Markets and Lyxor Japan UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Japan UCITS and IShares Developed 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 iShares Developed Markets are associated (or correlated) with Lyxor Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Japan UCITS has no effect on the direction of IShares Developed i.e., IShares Developed and Lyxor Japan go up and down completely randomly.

Pair Corralation between IShares Developed and Lyxor Japan

Assuming the 90 days trading horizon IShares Developed is expected to generate 2.53 times less return on investment than Lyxor Japan. But when comparing it to its historical volatility, iShares Developed Markets is 1.3 times less risky than Lyxor Japan. It trades about 0.03 of its potential returns per unit of risk. Lyxor Japan UCITS is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  2,145,760  in Lyxor Japan UCITS on September 12, 2024 and sell it today you would earn a total of  521,740  from holding Lyxor Japan UCITS or generate 24.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	84.99%
Values	Daily Returns

iShares Developed Markets  vs.  Lyxor Japan UCITS

iShares Developed Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

Lyxor Japan UCITS

Risk-Adjusted Performance

9 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor Japan UCITS are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Lyxor Japan may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares Developed and Lyxor Japan

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

The idea behind iShares Developed Markets and Lyxor Japan UCITS 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.