Correlation Between Xtrackers Nikkei and SPDR Barclays

Can any of the company-specific risk be diversified away by investing in both Xtrackers Nikkei and SPDR Barclays 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 SPDR Barclays 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 SPDR Barclays 3 5, you can compare the effects of market volatilities on Xtrackers Nikkei and SPDR Barclays 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 SPDR Barclays. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and SPDR Barclays.

Diversification Opportunities for Xtrackers Nikkei and SPDR Barclays

0.8

Correlation Coefficient

Xtrackers Nikkei  SPDR Barclays

Very poor diversification

The 3 months correlation between Xtrackers and SPDR is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and SPDR Barclays 3 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Barclays 3 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 SPDR Barclays. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Barclays 3 has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and SPDR Barclays go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and SPDR Barclays

Assuming the 90 days trading horizon Xtrackers Nikkei 225 is expected to under-perform the SPDR Barclays. In addition to that, Xtrackers Nikkei is 1.43 times more volatile than SPDR Barclays 3 5. It trades about -0.09 of its total potential returns per unit of risk. SPDR Barclays 3 5 is currently generating about -0.02 per unit of volatility. If you would invest  2,599  in SPDR Barclays 3 5 on December 29, 2024 and sell it today you would lose (23.00) from holding SPDR Barclays 3 5 or give up 0.88% of portfolio value over 90 days.

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

Xtrackers Nikkei 225  vs.  SPDR Barclays 3 5

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 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.

SPDR Barclays 3

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Barclays 3 5 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, SPDR Barclays 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 SPDR Barclays

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

The idea behind Xtrackers Nikkei 225 and SPDR Barclays 3 5 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.