Correlation Between Xtrackers and SPDR ICE

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

By analyzing existing cross correlation between Xtrackers II and SPDR ICE BofA, you can compare the effects of market volatilities on Xtrackers and SPDR ICE 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 SPDR ICE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and SPDR ICE.

Diversification Opportunities for Xtrackers and SPDR ICE

0.81

Correlation Coefficient

Xtrackers  SPDR ICE

Very poor diversification

The 3 months correlation between Xtrackers and SPDR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers II and SPDR ICE BofA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR ICE BofA 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 SPDR ICE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR ICE BofA has no effect on the direction of Xtrackers i.e., Xtrackers and SPDR ICE go up and down completely randomly.

Pair Corralation between Xtrackers and SPDR ICE

Assuming the 90 days trading horizon Xtrackers II is expected to under-perform the SPDR ICE. In addition to that, Xtrackers is 5.44 times more volatile than SPDR ICE BofA. It trades about -0.08 of its total potential returns per unit of risk. SPDR ICE BofA is currently generating about -0.05 per unit of volatility. If you would invest  2,931  in SPDR ICE BofA on September 15, 2024 and sell it today you would lose (15.00) from holding SPDR ICE BofA or give up 0.51% of portfolio value over 90 days.

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

Xtrackers II   vs.  SPDR ICE BofA

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.

SPDR ICE BofA

Risk-Adjusted Performance

0 of 100

Very Weak

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

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

The idea behind Xtrackers II and SPDR ICE BofA 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.