Correlation Between Xtrackers Nikkei and LG DAX

Can any of the company-specific risk be diversified away by investing in both Xtrackers Nikkei and LG DAX 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 LG DAX 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 LG DAX Daily, you can compare the effects of market volatilities on Xtrackers Nikkei and LG DAX 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 LG DAX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and LG DAX.

Diversification Opportunities for Xtrackers Nikkei and LG DAX

-0.69

Correlation Coefficient

Xtrackers Nikkei  LG DAX

Excellent diversification

The 3 months correlation between Xtrackers and DES2 is -0.69. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and LG DAX Daily in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG DAX Daily 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 LG DAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG DAX Daily has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and LG DAX go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and LG DAX

Assuming the 90 days trading horizon Xtrackers Nikkei 225 is expected to generate 0.64 times more return on investment than LG DAX. However, Xtrackers Nikkei 225 is 1.55 times less risky than LG DAX. It trades about 0.05 of its potential returns per unit of risk. LG DAX Daily is currently generating about -0.06 per unit of risk. If you would invest  2,009  in Xtrackers Nikkei 225 on October 22, 2024 and sell it today you would earn a total of  487.00  from holding Xtrackers Nikkei 225 or generate 24.24% return on investment over 90 days.

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

Xtrackers Nikkei 225  vs.  LG DAX Daily

Xtrackers Nikkei 225

Risk-Adjusted Performance

4 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Nikkei 225 are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. 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.

LG DAX Daily

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days LG DAX Daily has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fragile performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in February 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with Xtrackers Nikkei and LG DAX

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

The idea behind Xtrackers Nikkei 225 and LG DAX Daily 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.