Correlation Between VCRM and Xtrackers California

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

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

Diversification Opportunities for VCRM and Xtrackers California

0.74

Correlation Coefficient

VCRM  Xtrackers California

Poor diversification

The 3 months correlation between VCRM and Xtrackers is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding VCRM and Xtrackers California Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers California and VCRM 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 VCRM are associated (or correlated) with Xtrackers California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers California has no effect on the direction of VCRM i.e., VCRM and Xtrackers California go up and down completely randomly.

Pair Corralation between VCRM and Xtrackers California

Given the investment horizon of 90 days VCRM is expected to generate 0.86 times more return on investment than Xtrackers California. However, VCRM is 1.16 times less risky than Xtrackers California. It trades about 0.03 of its potential returns per unit of risk. Xtrackers California Municipal is currently generating about -0.06 per unit of risk. If you would invest  7,406  in VCRM on December 27, 2024 and sell it today you would earn a total of  31.00  from holding VCRM or generate 0.42% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.36%
Values	Daily Returns

VCRM  vs.  Xtrackers California Municipal

VCRM

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in VCRM are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, VCRM is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Xtrackers California

Risk-Adjusted Performance

Very Weak

Over the last 90 days Xtrackers California Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xtrackers California is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with VCRM and Xtrackers California

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

The idea behind VCRM and Xtrackers California Municipal 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.