Correlation Between IShares Core and Xtrackers FTSE

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

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

Diversification Opportunities for IShares Core and Xtrackers FTSE

0.33

Correlation Coefficient

IShares Core  Xtrackers FTSE

Weak diversification

The 3 months correlation between IShares and Xtrackers is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Xtrackers FTSE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers FTSE and IShares Core 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 iShares Core SP are associated (or correlated) with Xtrackers FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers FTSE has no effect on the direction of IShares Core i.e., IShares Core and Xtrackers FTSE go up and down completely randomly.

Pair Corralation between IShares Core and Xtrackers FTSE

Assuming the 90 days trading horizon iShares Core SP is expected to under-perform the Xtrackers FTSE. But the etf apears to be less risky and, when comparing its historical volatility, iShares Core SP is 1.05 times less risky than Xtrackers FTSE. The etf trades about -0.1 of its potential returns per unit of risk. The Xtrackers FTSE is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  3,034  in Xtrackers FTSE on December 25, 2024 and sell it today you would lose (127.00) from holding Xtrackers FTSE or give up 4.19% of portfolio value over 90 days.

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

iShares Core SP  vs.  Xtrackers FTSE

iShares Core SP

Risk-Adjusted Performance

Very Weak

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

Xtrackers FTSE

Risk-Adjusted Performance

Very Weak

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

Pair Trading with IShares Core and Xtrackers FTSE

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

The idea behind iShares Core SP and Xtrackers FTSE 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.