Correlation Between Xtrackers MSCI and IShares STOXX

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

By analyzing existing cross correlation between Xtrackers MSCI World and iShares STOXX Europe, you can compare the effects of market volatilities on Xtrackers MSCI and IShares STOXX 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 MSCI with a short position of IShares STOXX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers MSCI and IShares STOXX.

Diversification Opportunities for Xtrackers MSCI and IShares STOXX

-0.33

Correlation Coefficient

Xtrackers MSCI  IShares STOXX

Very good diversification

The 3 months correlation between Xtrackers and IShares is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI World and iShares STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares STOXX Europe and Xtrackers MSCI 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 MSCI World are associated (or correlated) with IShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares STOXX Europe has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and IShares STOXX go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and IShares STOXX

Assuming the 90 days trading horizon Xtrackers MSCI World is expected to generate 2.05 times more return on investment than IShares STOXX. However, Xtrackers MSCI is 2.05 times more volatile than iShares STOXX Europe. It trades about 0.15 of its potential returns per unit of risk. iShares STOXX Europe is currently generating about -0.06 per unit of risk. If you would invest  8,238  in Xtrackers MSCI World on October 4, 2024 and sell it today you would earn a total of  961.00  from holding Xtrackers MSCI World or generate 11.67% return on investment over 90 days.

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

Xtrackers MSCI World  vs.  iShares STOXX Europe

Xtrackers MSCI World

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI World are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

iShares STOXX Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares STOXX Europe has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares STOXX 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 MSCI and IShares STOXX

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

The idea behind Xtrackers MSCI World and iShares STOXX Europe 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.