Correlation Between Xtrackers Russell and Xtrackers MSCI

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

By analyzing existing cross correlation between Xtrackers Russell 2000 and Xtrackers MSCI USA, you can compare the effects of market volatilities on Xtrackers Russell and Xtrackers MSCI 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 Russell with a short position of Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Russell and Xtrackers MSCI.

Diversification Opportunities for Xtrackers Russell and Xtrackers MSCI

0.61

Correlation Coefficient

Xtrackers Russell  Xtrackers MSCI

Poor diversification

The 3 months correlation between Xtrackers and Xtrackers is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Russell 2000 and Xtrackers MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI USA and Xtrackers Russell 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 Russell 2000 are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI USA has no effect on the direction of Xtrackers Russell i.e., Xtrackers Russell and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between Xtrackers Russell and Xtrackers MSCI

Assuming the 90 days trading horizon Xtrackers Russell 2000 is expected to under-perform the Xtrackers MSCI. In addition to that, Xtrackers Russell is 1.32 times more volatile than Xtrackers MSCI USA. It trades about -0.15 of its total potential returns per unit of risk. Xtrackers MSCI USA is currently generating about 0.27 per unit of volatility. If you would invest  910,300  in Xtrackers MSCI USA on October 9, 2024 and sell it today you would earn a total of  37,550  from holding Xtrackers MSCI USA or generate 4.13% return on investment over 90 days.

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

Xtrackers Russell 2000  vs.  Xtrackers MSCI USA

Xtrackers Russell 2000

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Russell 2000 are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers Russell may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Xtrackers MSCI USA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI USA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Xtrackers Russell and Xtrackers MSCI

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

The idea behind Xtrackers Russell 2000 and Xtrackers MSCI USA 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.