Correlation Between Xtrackers MSCI and Davis Select

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

By analyzing existing cross correlation between Xtrackers MSCI Kokusai and Davis Select Worldwide, you can compare the effects of market volatilities on Xtrackers MSCI and Davis Select 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 Davis Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers MSCI and Davis Select.

Diversification Opportunities for Xtrackers MSCI and Davis Select

0.86

Correlation Coefficient

Xtrackers MSCI  Davis Select

Very poor diversification

The 3 months correlation between Xtrackers and Davis is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI Kokusai and Davis Select Worldwide in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Davis Select Worldwide 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 Kokusai are associated (or correlated) with Davis Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Davis Select Worldwide has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and Davis Select go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and Davis Select

Given the investment horizon of 90 days Xtrackers MSCI Kokusai is expected to under-perform the Davis Select. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers MSCI Kokusai is 1.18 times less risky than Davis Select. The etf trades about -0.11 of its potential returns per unit of risk. The Davis Select Worldwide is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  3,735  in Davis Select Worldwide on December 5, 2024 and sell it today you would earn a total of  114.00  from holding Davis Select Worldwide or generate 3.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Xtrackers MSCI Kokusai  vs.  Davis Select Worldwide

Xtrackers MSCI Kokusai

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xtrackers MSCI Kokusai has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward-looking signals, Xtrackers MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Davis Select Worldwide

Risk-Adjusted Performance

Very Weak

Over the last 90 days Davis Select Worldwide has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound essential indicators, Davis Select is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Xtrackers MSCI and Davis Select

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

The idea behind Xtrackers MSCI Kokusai and Davis Select Worldwide 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.