Correlation Between Xtrackers Short and ARCA Institutional

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

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

Diversification Opportunities for Xtrackers Short and ARCA Institutional

0.85

Correlation Coefficient

Xtrackers Short  ARCA Institutional

Very poor diversification

The 3 months correlation between Xtrackers and ARCA is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Short Duration and ARCA Institutional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ARCA Institutional and Xtrackers Short 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 Short Duration are associated (or correlated) with ARCA Institutional. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ARCA Institutional has no effect on the direction of Xtrackers Short i.e., Xtrackers Short and ARCA Institutional go up and down completely randomly.

Pair Corralation between Xtrackers Short and ARCA Institutional

Given the investment horizon of 90 days Xtrackers Short Duration is expected to generate 0.26 times more return on investment than ARCA Institutional. However, Xtrackers Short Duration is 3.85 times less risky than ARCA Institutional. It trades about -0.06 of its potential returns per unit of risk. ARCA Institutional is currently generating about -0.15 per unit of risk. If you would invest  4,485  in Xtrackers Short Duration on October 14, 2024 and sell it today you would lose (15.00) from holding Xtrackers Short Duration or give up 0.33% of portfolio value over 90 days.

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

Xtrackers Short Duration  vs.  ARCA Institutional

Pair Trading with Xtrackers Short and ARCA Institutional

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

The idea behind Xtrackers Short Duration and ARCA Institutional 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..