Correlation Between Xtrackers MSCI and FlexShares STOXX

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

Diversification Opportunities for Xtrackers MSCI and FlexShares STOXX

0.73

Correlation Coefficient

Xtrackers MSCI  FlexShares STOXX

Poor diversification

The 3 months correlation between Xtrackers and FlexShares is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI Kokusai and FlexShares STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX Global 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 FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX Global has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and FlexShares STOXX go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and FlexShares STOXX

Given the investment horizon of 90 days Xtrackers MSCI is expected to generate 1.41 times less return on investment than FlexShares STOXX. In addition to that, Xtrackers MSCI is 1.04 times more volatile than FlexShares STOXX Global. It trades about 0.31 of its total potential returns per unit of risk. FlexShares STOXX Global is currently generating about 0.45 per unit of volatility. If you would invest  16,897  in FlexShares STOXX Global on September 17, 2024 and sell it today you would earn a total of  592.40  from holding FlexShares STOXX Global or generate 3.51% return on investment over 90 days.

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

Xtrackers MSCI Kokusai  vs.  FlexShares STOXX Global

Xtrackers MSCI Kokusai

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI Kokusai are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable forward-looking signals, Xtrackers MSCI is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

FlexShares STOXX Global

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares STOXX Global are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, FlexShares STOXX is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Xtrackers MSCI and FlexShares STOXX

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

The idea behind Xtrackers MSCI Kokusai and FlexShares STOXX Global 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.