Correlation Between Xtrackers and Source SP

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

By analyzing existing cross correlation between Xtrackers II and Source SP 500, you can compare the effects of market volatilities on Xtrackers and Source SP 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 with a short position of Source SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and Source SP.

Diversification Opportunities for Xtrackers and Source SP

-0.12

Correlation Coefficient

Xtrackers  Source SP

Good diversification

The 3 months correlation between Xtrackers and Source is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers II and Source SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Source SP 500 and Xtrackers 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 II are associated (or correlated) with Source SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Source SP 500 has no effect on the direction of Xtrackers i.e., Xtrackers and Source SP go up and down completely randomly.

Pair Corralation between Xtrackers and Source SP

Assuming the 90 days trading horizon Xtrackers II is expected to under-perform the Source SP. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers II is 1.11 times less risky than Source SP. The etf trades about -0.03 of its potential returns per unit of risk. The Source SP 500 is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  3,574  in Source SP 500 on September 28, 2024 and sell it today you would earn a total of  1,035  from holding Source SP 500 or generate 28.96% return on investment over 90 days.

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

Xtrackers II   vs.  Source SP 500

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers II has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Source SP 500

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Source SP 500 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Source SP 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 and Source SP

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

The idea behind Xtrackers II and Source SP 500 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 Transaction History module to view history of all your transactions and understand their impact on performance.