Correlation Between Xtrackers Nikkei and IShares Core

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

Diversification Opportunities for Xtrackers Nikkei and IShares Core

0.63

Correlation Coefficient

Xtrackers Nikkei  IShares Core

Poor diversification

The 3 months correlation between Xtrackers and IShares is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and iShares Core MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core MSCI 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 Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core MSCI has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and IShares Core go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and IShares Core

Assuming the 90 days trading horizon Xtrackers Nikkei is expected to generate 1.37 times less return on investment than IShares Core. In addition to that, Xtrackers Nikkei is 1.2 times more volatile than iShares Core MSCI. It trades about 0.06 of its total potential returns per unit of risk. iShares Core MSCI is currently generating about 0.1 per unit of volatility. If you would invest  3,089  in iShares Core MSCI on September 4, 2024 and sell it today you would earn a total of  192.00  from holding iShares Core MSCI or generate 6.22% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.92%
Values	Daily Returns

Xtrackers Nikkei 225  vs.  iShares Core MSCI

Xtrackers Nikkei 225

Risk-Adjusted Performance

4 of 100

Insignificant

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.

iShares Core MSCI

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Core MSCI are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares Core is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Xtrackers Nikkei and IShares Core

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

The idea behind Xtrackers Nikkei 225 and iShares Core MSCI 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 Portfolio Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.