Correlation Between FlexShares Disciplined and FlexShares Quality

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

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

Diversification Opportunities for FlexShares Disciplined and FlexShares Quality

-0.56

Correlation Coefficient

FlexShares Disciplined  FlexShares Quality

Excellent diversification

The 3 months correlation between FlexShares and FlexShares is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Disciplined Duratio and FlexShares Quality Large in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality Large and FlexShares Disciplined 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 Disciplined Duration are associated (or correlated) with FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality Large has no effect on the direction of FlexShares Disciplined i.e., FlexShares Disciplined and FlexShares Quality go up and down completely randomly.

Pair Corralation between FlexShares Disciplined and FlexShares Quality

Given the investment horizon of 90 days FlexShares Disciplined Duration is expected to under-perform the FlexShares Quality. But the etf apears to be less risky and, when comparing its historical volatility, FlexShares Disciplined Duration is 2.25 times less risky than FlexShares Quality. The etf trades about -0.14 of its potential returns per unit of risk. The FlexShares Quality Large is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  6,334  in FlexShares Quality Large on September 17, 2024 and sell it today you would earn a total of  498.99  from holding FlexShares Quality Large or generate 7.88% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

FlexShares Disciplined Duratio  vs.  FlexShares Quality Large

FlexShares Disciplined

Risk-Adjusted Performance

0 of 100

Very Weak

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

FlexShares Quality Large

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Large are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady essential indicators, FlexShares Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FlexShares Disciplined and FlexShares Quality

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

The idea behind FlexShares Disciplined Duration and FlexShares Quality Large 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.