Correlation Between Xtrackers MSCI and Vanguard Funds

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

Diversification Opportunities for Xtrackers MSCI and Vanguard Funds

0.98

Correlation Coefficient

Xtrackers MSCI  Vanguard Funds

Almost no diversification

The 3 months correlation between Xtrackers and Vanguard is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI World and Vanguard Funds PLC in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Funds PLC 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 Vanguard Funds. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Funds PLC has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and Vanguard Funds go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and Vanguard Funds

Assuming the 90 days trading horizon Xtrackers MSCI World is expected to generate 2.03 times more return on investment than Vanguard Funds. However, Xtrackers MSCI is 2.03 times more volatile than Vanguard Funds PLC. It trades about 0.18 of its potential returns per unit of risk. Vanguard Funds PLC is currently generating about 0.15 per unit of risk. If you would invest  8,057  in Xtrackers MSCI World on September 23, 2024 and sell it today you would earn a total of  1,209  from holding Xtrackers MSCI World or generate 15.01% return on investment over 90 days.

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

Xtrackers MSCI World  vs.  Vanguard Funds PLC

Xtrackers MSCI World

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI World are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xtrackers MSCI reported solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Funds PLC

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Funds PLC are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard Funds 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 Vanguard Funds

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

The idea behind Xtrackers MSCI World and Vanguard Funds PLC 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.