Correlation Between Vanguard and Xtrackers MSCI

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

Diversification Opportunities for Vanguard and Xtrackers MSCI

-0.65

Correlation Coefficient

Vanguard  Xtrackers MSCI

Excellent diversification

The 3 months correlation between Vanguard and Xtrackers is -0.65. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Xtrackers MSCI AC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI AC 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 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 AC has no effect on the direction of Vanguard i.e., Vanguard and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between Vanguard and Xtrackers MSCI

Assuming the 90 days trading horizon Vanguard SP 500 is expected to generate 1.37 times more return on investment than Xtrackers MSCI. However, Vanguard is 1.37 times more volatile than Xtrackers MSCI AC. It trades about 0.05 of its potential returns per unit of risk. Xtrackers MSCI AC is currently generating about -0.24 per unit of risk. If you would invest  10,179  in Vanguard SP 500 on October 12, 2024 and sell it today you would earn a total of  57.00  from holding Vanguard SP 500 or generate 0.56% return on investment over 90 days.

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

Vanguard SP 500  vs.  Xtrackers MSCI AC

Vanguard SP 500

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Xtrackers MSCI AC

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers MSCI AC has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Xtrackers MSCI is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard and Xtrackers MSCI

The main advantage of trading using opposite Vanguard and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 Vanguard SP 500 and Xtrackers MSCI AC 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .