Correlation Between Xtrackers Nikkei and Lyxor Fed

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

By analyzing existing cross correlation between Xtrackers Nikkei 225 and Lyxor Fed Funds, you can compare the effects of market volatilities on Xtrackers Nikkei and Lyxor Fed 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 Nikkei with a short position of Lyxor Fed. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and Lyxor Fed.

Diversification Opportunities for Xtrackers Nikkei and Lyxor Fed

0.16

Correlation Coefficient

Xtrackers Nikkei  Lyxor Fed

Average diversification

The 3 months correlation between Xtrackers and Lyxor is 0.16. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and Lyxor Fed Funds in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Fed Funds and Xtrackers Nikkei 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 Nikkei 225 are associated (or correlated) with Lyxor Fed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Fed Funds has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and Lyxor Fed go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and Lyxor Fed

Assuming the 90 days trading horizon Xtrackers Nikkei is expected to generate 10.51 times less return on investment than Lyxor Fed. In addition to that, Xtrackers Nikkei is 1.8 times more volatile than Lyxor Fed Funds. It trades about 0.01 of its total potential returns per unit of risk. Lyxor Fed Funds is currently generating about 0.26 per unit of volatility. If you would invest  9,955  in Lyxor Fed Funds on August 31, 2024 and sell it today you would earn a total of  338.00  from holding Lyxor Fed Funds or generate 3.4% return on investment over 90 days.

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

Xtrackers Nikkei 225  vs.  Lyxor Fed Funds

Xtrackers Nikkei 225

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Xtrackers Nikkei is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Lyxor Fed Funds

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor Fed Funds are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Lyxor Fed is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Xtrackers Nikkei and Lyxor Fed

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

The idea behind Xtrackers Nikkei 225 and Lyxor Fed Funds 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 Transaction History module to view history of all your transactions and understand their impact on performance.