Correlation Between SP 500 and Xtrackers MSCI

Can any of the company-specific risk be diversified away by investing in both SP 500 and Xtrackers MSCI 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 SP 500 and Xtrackers MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SP 500 VIX and Xtrackers MSCI USA, you can compare the effects of market volatilities on SP 500 and Xtrackers MSCI 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 SP 500 with a short position of Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP 500 and Xtrackers MSCI.

Diversification Opportunities for SP 500 and Xtrackers MSCI

-0.82

Correlation Coefficient

SP 500  Xtrackers MSCI

Pay attention - limited upside

The 3 months correlation between VILX and Xtrackers is -0.82. Overlapping area represents the amount of risk that can be diversified away by holding SP 500 VIX and Xtrackers MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI USA and SP 500 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 SP 500 VIX are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI USA has no effect on the direction of SP 500 i.e., SP 500 and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between SP 500 and Xtrackers MSCI

Assuming the 90 days trading horizon SP 500 VIX is expected to under-perform the Xtrackers MSCI. In addition to that, SP 500 is 9.03 times more volatile than Xtrackers MSCI USA. It trades about -0.06 of its total potential returns per unit of risk. Xtrackers MSCI USA is currently generating about 0.15 per unit of volatility. If you would invest  864,000  in Xtrackers MSCI USA on October 25, 2024 and sell it today you would earn a total of  90,400  from holding Xtrackers MSCI USA or generate 10.46% return on investment over 90 days.

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

SP 500 VIX  vs.  Xtrackers MSCI USA

SP 500 VIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days SP 500 VIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in February 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Xtrackers MSCI USA

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI USA are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with SP 500 and Xtrackers MSCI

The main advantage of trading using opposite SP 500 and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP 500 position performs unexpectedly, Xtrackers MSCI 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 MSCI will offset losses from the drop in Xtrackers MSCI's long position.

The idea behind SP 500 VIX and Xtrackers MSCI USA 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.