Correlation Between Swiss Leader and Xtrackers MSCI

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

By analyzing existing cross correlation between Swiss Leader Price and Xtrackers MSCI EMU, you can compare the effects of market volatilities on Swiss Leader and Xtrackers MSCI 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 Swiss Leader with a short position of Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and Xtrackers MSCI.

Diversification Opportunities for Swiss Leader and Xtrackers MSCI

0.64

Correlation Coefficient

Swiss Leader  Xtrackers MSCI

Poor diversification

The 3 months correlation between Swiss and Xtrackers is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and Xtrackers MSCI EMU in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI EMU and Swiss Leader 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 Swiss Leader Price are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI EMU has no effect on the direction of Swiss Leader i.e., Swiss Leader and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between Swiss Leader and Xtrackers MSCI

Assuming the 90 days trading horizon Swiss Leader Price is expected to generate 0.97 times more return on investment than Xtrackers MSCI. However, Swiss Leader Price is 1.03 times less risky than Xtrackers MSCI. It trades about 0.6 of its potential returns per unit of risk. Xtrackers MSCI EMU is currently generating about 0.57 per unit of risk. If you would invest  191,700  in Swiss Leader Price on October 26, 2024 and sell it today you would earn a total of  11,451  from holding Swiss Leader Price or generate 5.97% return on investment over 90 days.

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

Swiss Leader Price  vs.  Xtrackers MSCI EMU

Pair Trading with Swiss Leader and Xtrackers MSCI

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

The idea behind Swiss Leader Price and Xtrackers MSCI EMU 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.