Correlation Between Xtrackers Nikkei and IShares Nikkei

Can any of the company-specific risk be diversified away by investing in both Xtrackers Nikkei and IShares Nikkei 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 IShares Nikkei 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 iShares Nikkei 225, you can compare the effects of market volatilities on Xtrackers Nikkei and IShares Nikkei 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 IShares Nikkei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and IShares Nikkei.

Diversification Opportunities for Xtrackers Nikkei and IShares Nikkei

0.99

Correlation Coefficient

Xtrackers Nikkei  IShares Nikkei

No risk reduction

The 3 months correlation between Xtrackers and IShares is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and iShares Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Nikkei 225 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 IShares Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Nikkei 225 has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and IShares Nikkei go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and IShares Nikkei

Assuming the 90 days trading horizon Xtrackers Nikkei 225 is expected to under-perform the IShares Nikkei. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers Nikkei 225 is 1.05 times less risky than IShares Nikkei. The etf trades about -0.12 of its potential returns per unit of risk. The iShares Nikkei 225 is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  2,409  in iShares Nikkei 225 on December 30, 2024 and sell it today you would lose (164.00) from holding iShares Nikkei 225 or give up 6.81% of portfolio value over 90 days.

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

Xtrackers Nikkei 225  vs.  iShares Nikkei 225

Xtrackers Nikkei 225

Risk-Adjusted Performance

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 latest unsteady performance, the Etf's forward-looking indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

iShares Nikkei 225

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unsteady performance, the Etf's basic indicators remain stable and the current disturbance on Wall Street may also be a sign of long-run gains for the Exchange Traded Fund stockholders.

Pair Trading with Xtrackers Nikkei and IShares Nikkei

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

The idea behind Xtrackers Nikkei 225 and iShares Nikkei 225 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.