Correlation Between FlexShares STOXX and Themes Transatlantic

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

By analyzing existing cross correlation between FlexShares STOXX Global and Themes Transatlantic Defense, you can compare the effects of market volatilities on FlexShares STOXX and Themes Transatlantic 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 STOXX with a short position of Themes Transatlantic. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares STOXX and Themes Transatlantic.

Diversification Opportunities for FlexShares STOXX and Themes Transatlantic

0.52

Correlation Coefficient

FlexShares STOXX  Themes Transatlantic

Very weak diversification

The 3 months correlation between FlexShares and Themes is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares STOXX Global and Themes Transatlantic Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Themes Transatlantic and FlexShares STOXX 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 STOXX Global are associated (or correlated) with Themes Transatlantic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Themes Transatlantic has no effect on the direction of FlexShares STOXX i.e., FlexShares STOXX and Themes Transatlantic go up and down completely randomly.

Pair Corralation between FlexShares STOXX and Themes Transatlantic

Given the investment horizon of 90 days FlexShares STOXX is expected to generate 2.28 times less return on investment than Themes Transatlantic. But when comparing it to its historical volatility, FlexShares STOXX Global is 1.9 times less risky than Themes Transatlantic. It trades about 0.16 of its potential returns per unit of risk. Themes Transatlantic Defense is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  2,552  in Themes Transatlantic Defense on December 29, 2024 and sell it today you would earn a total of  378.00  from holding Themes Transatlantic Defense or generate 14.81% return on investment over 90 days.

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

FlexShares STOXX Global  vs.  Themes Transatlantic Defense

FlexShares STOXX Global

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares STOXX Global are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, FlexShares STOXX may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Themes Transatlantic

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Themes Transatlantic Defense are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain basic indicators, Themes Transatlantic displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with FlexShares STOXX and Themes Transatlantic

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

The idea behind FlexShares STOXX Global and Themes Transatlantic Defense 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.