Correlation Between Xtrackers and Xtrackers MSCI

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

By analyzing existing cross correlation between Xtrackers SP 500 and Xtrackers MSCI USA, you can compare the effects of market volatilities on Xtrackers 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 Xtrackers with a short position of Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and Xtrackers MSCI.

Diversification Opportunities for Xtrackers and Xtrackers MSCI

0.99

Correlation Coefficient

Xtrackers  Xtrackers MSCI

No risk reduction

The 3 months correlation between Xtrackers and Xtrackers is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers SP 500 and Xtrackers MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI USA and Xtrackers 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 SP 500 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 USA has no effect on the direction of Xtrackers i.e., Xtrackers and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between Xtrackers and Xtrackers MSCI

Given the investment horizon of 90 days Xtrackers is expected to generate 1.09 times less return on investment than Xtrackers MSCI. But when comparing it to its historical volatility, Xtrackers SP 500 is 1.08 times less risky than Xtrackers MSCI. It trades about 0.2 of its potential returns per unit of risk. Xtrackers MSCI USA is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  5,091  in Xtrackers MSCI USA on September 3, 2024 and sell it today you would earn a total of  525.00  from holding Xtrackers MSCI USA or generate 10.31% return on investment over 90 days.

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

Xtrackers SP 500  vs.  Xtrackers MSCI USA

Xtrackers SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Xtrackers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xtrackers MSCI USA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI USA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Xtrackers and Xtrackers MSCI

The main advantage of trading using opposite Xtrackers and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers 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 Xtrackers SP 500 and Xtrackers MSCI USA 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.