Correlation Between Xtrackers USD and Vanguard FTSE

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

By analyzing existing cross correlation between Xtrackers USD Corporate and Vanguard FTSE Developed, you can compare the effects of market volatilities on Xtrackers USD and Vanguard FTSE 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 USD with a short position of Vanguard FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers USD and Vanguard FTSE.

Diversification Opportunities for Xtrackers USD and Vanguard FTSE

0.87

Correlation Coefficient

Xtrackers USD  Vanguard FTSE

Very poor diversification

The 3 months correlation between Xtrackers and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers USD Corporate and Vanguard FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Developed and Xtrackers USD 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 USD Corporate are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Developed has no effect on the direction of Xtrackers USD i.e., Xtrackers USD and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Xtrackers USD and Vanguard FTSE

Assuming the 90 days trading horizon Xtrackers USD Corporate is expected to generate 0.33 times more return on investment than Vanguard FTSE. However, Xtrackers USD Corporate is 3.01 times less risky than Vanguard FTSE. It trades about -0.13 of its potential returns per unit of risk. Vanguard FTSE Developed is currently generating about -0.11 per unit of risk. If you would invest  2,009  in Xtrackers USD Corporate on October 10, 2024 and sell it today you would lose (44.00) from holding Xtrackers USD Corporate or give up 2.19% of portfolio value over 90 days.

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

Xtrackers USD Corporate  vs.  Vanguard FTSE Developed

Xtrackers USD Corporate

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers USD Corporate has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Xtrackers USD is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard FTSE Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Xtrackers USD and Vanguard FTSE

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

The idea behind Xtrackers USD Corporate and Vanguard FTSE Developed 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.