Correlation Between IShares VII and Xtrackers

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

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

Diversification Opportunities for IShares VII and Xtrackers

0.49

Correlation Coefficient

IShares VII  Xtrackers

Very weak diversification

The 3 months correlation between IShares and Xtrackers is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding iShares VII PLC and Xtrackers SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP and IShares VII 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 VII PLC 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 SP has no effect on the direction of IShares VII i.e., IShares VII and Xtrackers go up and down completely randomly.

Pair Corralation between IShares VII and Xtrackers

Assuming the 90 days trading horizon iShares VII PLC is expected to generate 0.85 times more return on investment than Xtrackers. However, iShares VII PLC is 1.18 times less risky than Xtrackers. It trades about 0.07 of its potential returns per unit of risk. Xtrackers SP is currently generating about -0.03 per unit of risk. If you would invest  23,660  in iShares VII PLC on September 23, 2024 and sell it today you would earn a total of  350.00  from holding iShares VII PLC or generate 1.48% return on investment over 90 days.

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

iShares VII PLC  vs.  Xtrackers SP

iShares VII PLC

Risk-Adjusted Performance

0 of 100

Very Weak

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

Xtrackers SP

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xtrackers reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares VII and Xtrackers

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

Check out your portfolio center.

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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.