Correlation Between FlexShares Quality and FlexShares Global

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

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

Diversification Opportunities for FlexShares Quality and FlexShares Global

0.92

Correlation Coefficient

FlexShares Quality  FlexShares Global

Almost no diversification

The 3 months correlation between FlexShares and FlexShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Quality Dividend and FlexShares Global Quality in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Global Quality and FlexShares Quality 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 Quality Dividend are associated (or correlated) with FlexShares Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Global Quality has no effect on the direction of FlexShares Quality i.e., FlexShares Quality and FlexShares Global go up and down completely randomly.

Pair Corralation between FlexShares Quality and FlexShares Global

Given the investment horizon of 90 days FlexShares Quality Dividend is expected to generate 0.69 times more return on investment than FlexShares Global. However, FlexShares Quality Dividend is 1.46 times less risky than FlexShares Global. It trades about -0.02 of its potential returns per unit of risk. FlexShares Global Quality is currently generating about -0.03 per unit of risk. If you would invest  7,326  in FlexShares Quality Dividend on December 2, 2024 and sell it today you would lose (75.00) from holding FlexShares Quality Dividend or give up 1.02% of portfolio value over 90 days.

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

FlexShares Quality Dividend  vs.  FlexShares Global Quality

FlexShares Quality

Risk-Adjusted Performance

Very Weak

Over the last 90 days FlexShares Quality Dividend has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, FlexShares Quality is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

FlexShares Global Quality

Risk-Adjusted Performance

Very Weak

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

Pair Trading with FlexShares Quality and FlexShares Global

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

The idea behind FlexShares Quality Dividend and FlexShares Global Quality 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.