Correlation Between Xtrackers MSCI and Nuveen ESG

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

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

Diversification Opportunities for Xtrackers MSCI and Nuveen ESG

0.79

Correlation Coefficient

Xtrackers MSCI  Nuveen ESG

Poor diversification

The 3 months correlation between Xtrackers and Nuveen is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI USA and Nuveen ESG Large Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen ESG Large and Xtrackers MSCI 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 MSCI USA are associated (or correlated) with Nuveen ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen ESG Large has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and Nuveen ESG go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and Nuveen ESG

Given the investment horizon of 90 days Xtrackers MSCI USA is expected to under-perform the Nuveen ESG. In addition to that, Xtrackers MSCI is 1.23 times more volatile than Nuveen ESG Large Cap. It trades about -0.09 of its total potential returns per unit of risk. Nuveen ESG Large Cap is currently generating about -0.08 per unit of volatility. If you would invest  4,742  in Nuveen ESG Large Cap on December 3, 2024 and sell it today you would lose (198.00) from holding Nuveen ESG Large Cap or give up 4.18% of portfolio value over 90 days.

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

Xtrackers MSCI USA  vs.  Nuveen ESG Large Cap

Xtrackers MSCI USA

Risk-Adjusted Performance

Very Weak

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

Nuveen ESG Large

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Xtrackers MSCI and Nuveen ESG

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

The idea behind Xtrackers MSCI USA and Nuveen ESG Large Cap 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 Global Correlations module to find global opportunities by holding instruments from different markets.