Correlation Between Xtrackers MSCI and Vanguard

Can any of the company-specific risk be diversified away by investing in both Xtrackers MSCI and Vanguard 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 Vanguard 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 Vanguard SP 500, you can compare the effects of market volatilities on Xtrackers MSCI and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers MSCI and Vanguard.

Diversification Opportunities for Xtrackers MSCI and Vanguard

0.96

Correlation Coefficient

Xtrackers MSCI  Vanguard

Almost no diversification

The 3 months correlation between Xtrackers and Vanguard is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI USA and Vanguard SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP 500 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 Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP 500 has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and Vanguard go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and Vanguard

Given the investment horizon of 90 days Xtrackers MSCI USA is expected to under-perform the Vanguard. In addition to that, Xtrackers MSCI is 1.13 times more volatile than Vanguard SP 500. It trades about -0.1 of its total potential returns per unit of risk. Vanguard SP 500 is currently generating about -0.08 per unit of volatility. If you would invest  53,912  in Vanguard SP 500 on December 29, 2024 and sell it today you would lose (2,832) from holding Vanguard SP 500 or give up 5.25% of portfolio value over 90 days.

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

Xtrackers MSCI USA  vs.  Vanguard SP 500

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 latest conflicting 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.

Vanguard SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Vanguard is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Xtrackers MSCI and Vanguard

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

The idea behind Xtrackers MSCI USA and Vanguard SP 500 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.