Correlation Between Source Markets and Xtrackers

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

By analyzing existing cross correlation between Source Markets plc and Xtrackers II , you can compare the effects of market volatilities on Source Markets and Xtrackers 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 Source Markets with a short position of Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of Source Markets and Xtrackers.

Diversification Opportunities for Source Markets and Xtrackers

0.25

Correlation Coefficient

Source Markets  Xtrackers

Modest diversification

The 3 months correlation between Source and Xtrackers is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Source Markets plc and Xtrackers II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers II and Source Markets 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 Source Markets plc are associated (or correlated) with Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers II has no effect on the direction of Source Markets i.e., Source Markets and Xtrackers go up and down completely randomly.

Pair Corralation between Source Markets and Xtrackers

Assuming the 90 days trading horizon Source Markets plc is expected to under-perform the Xtrackers. In addition to that, Source Markets is 1.81 times more volatile than Xtrackers II . It trades about -0.23 of its total potential returns per unit of risk. Xtrackers II is currently generating about -0.12 per unit of volatility. If you would invest  777.00  in Xtrackers II on October 6, 2024 and sell it today you would lose (13.00) from holding Xtrackers II or give up 1.67% of portfolio value over 90 days.

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

Source Markets plc  vs.  Xtrackers II

Source Markets plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Source Markets plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Source Markets and Xtrackers

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

The idea behind Source Markets plc and Xtrackers II 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.