Correlation Between IShares Broad and Xtrackers Low

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

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

Diversification Opportunities for IShares Broad and Xtrackers Low

0.9

Correlation Coefficient

IShares Broad  Xtrackers Low

Almost no diversification

The 3 months correlation between IShares and Xtrackers is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and Xtrackers Low Beta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Low Beta and IShares Broad 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 Broad USD are associated (or correlated) with Xtrackers Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Low Beta has no effect on the direction of IShares Broad i.e., IShares Broad and Xtrackers Low go up and down completely randomly.

Pair Corralation between IShares Broad and Xtrackers Low

Given the investment horizon of 90 days iShares Broad USD is expected to under-perform the Xtrackers Low. In addition to that, IShares Broad is 1.21 times more volatile than Xtrackers Low Beta. It trades about -0.1 of its total potential returns per unit of risk. Xtrackers Low Beta is currently generating about -0.08 per unit of volatility. If you would invest  4,632  in Xtrackers Low Beta on October 14, 2024 and sell it today you would lose (21.00) from holding Xtrackers Low Beta or give up 0.45% of portfolio value over 90 days.

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

iShares Broad USD  vs.  Xtrackers Low Beta

iShares Broad USD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Broad USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, IShares Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xtrackers Low Beta

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers Low Beta has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Xtrackers Low is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Broad and Xtrackers Low

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

The idea behind iShares Broad USD and Xtrackers Low Beta 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.