Correlation Between Vanguard and Xtrackers

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

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

Diversification Opportunities for Vanguard and Xtrackers

1.0

Correlation Coefficient

Vanguard  Xtrackers

No risk reduction

The 3 months correlation between Vanguard and Xtrackers is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Xtrackers SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers SP 500 and Vanguard 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 Vanguard SP 500 are associated (or correlated) with Xtrackers. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers SP 500 has no effect on the direction of Vanguard i.e., Vanguard and Xtrackers go up and down completely randomly.

Pair Corralation between Vanguard and Xtrackers

Considering the 90-day investment horizon Vanguard SP 500 is expected to generate 0.99 times more return on investment than Xtrackers. However, Vanguard SP 500 is 1.01 times less risky than Xtrackers. It trades about 0.2 of its potential returns per unit of risk. Xtrackers SP 500 is currently generating about 0.18 per unit of risk. If you would invest  51,497  in Vanguard SP 500 on September 13, 2024 and sell it today you would earn a total of  4,356  from holding Vanguard SP 500 or generate 8.46% return on investment over 90 days.

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

Vanguard SP 500  vs.  Xtrackers SP 500

Vanguard SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Xtrackers SP 500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Xtrackers may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard and Xtrackers

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

The idea behind Vanguard SP 500 and Xtrackers 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.

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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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.