Correlation Between Legal General and Xtrackers Nikkei

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

By analyzing existing cross correlation between Legal General Ucits and Xtrackers Nikkei 225, you can compare the effects of market volatilities on Legal General and Xtrackers Nikkei 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 Legal General with a short position of Xtrackers Nikkei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Legal General and Xtrackers Nikkei.

Diversification Opportunities for Legal General and Xtrackers Nikkei

0.58

Correlation Coefficient

Legal General  Xtrackers Nikkei

Very weak diversification

The 3 months correlation between Legal and Xtrackers is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding Legal General Ucits and Xtrackers Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Nikkei 225 and Legal General 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 Legal General Ucits are associated (or correlated) with Xtrackers Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Nikkei 225 has no effect on the direction of Legal General i.e., Legal General and Xtrackers Nikkei go up and down completely randomly.

Pair Corralation between Legal General and Xtrackers Nikkei

Assuming the 90 days trading horizon Legal General is expected to generate 1.76 times less return on investment than Xtrackers Nikkei. In addition to that, Legal General is 1.24 times more volatile than Xtrackers Nikkei 225. It trades about 0.12 of its total potential returns per unit of risk. Xtrackers Nikkei 225 is currently generating about 0.25 per unit of volatility. If you would invest  2,404  in Xtrackers Nikkei 225 on September 21, 2024 and sell it today you would earn a total of  117.00  from holding Xtrackers Nikkei 225 or generate 4.87% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Legal General Ucits  vs.  Xtrackers Nikkei 225

Legal General Ucits

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Legal General Ucits are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical and fundamental indicators, Legal General is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Xtrackers Nikkei 225

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Nikkei 225 are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Xtrackers Nikkei is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Legal General and Xtrackers Nikkei

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

The idea behind Legal General Ucits and Xtrackers Nikkei 225 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.