Correlation Between IShares Core and Xtrackers

Can any of the company-specific risk be diversified away by investing in both IShares Core 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 IShares Core and Xtrackers 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 II , you can compare the effects of market volatilities on IShares Core 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 IShares Core with a short position of Xtrackers. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Xtrackers.

Diversification Opportunities for IShares Core and Xtrackers

0.78

Correlation Coefficient

IShares Core  Xtrackers

Poor diversification

The 3 months correlation between IShares and Xtrackers is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core SP and Xtrackers II in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers II 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. 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 IShares Core i.e., IShares Core and Xtrackers go up and down completely randomly.

Pair Corralation between IShares Core and Xtrackers

Assuming the 90 days trading horizon iShares Core SP is expected to under-perform the Xtrackers. In addition to that, IShares Core is 1.22 times more volatile than Xtrackers II . It trades about -0.12 of its total potential returns per unit of risk. Xtrackers II is currently generating about -0.1 per unit of volatility. If you would invest  764.00  in Xtrackers II on December 31, 2024 and sell it today you would lose (35.00) from holding Xtrackers II or give up 4.58% of portfolio value over 90 days.

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

iShares Core SP  vs.  Xtrackers II

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 latest unsteady performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Xtrackers II

Risk-Adjusted Performance

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 latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares Core and Xtrackers

The main advantage of trading using opposite IShares Core and Xtrackers positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core 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 iShares Core SP 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.