Correlation Between Xtrackers MSCI and Xtrackers Russell

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

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

Diversification Opportunities for Xtrackers MSCI and Xtrackers Russell

0.5

Correlation Coefficient

Xtrackers MSCI  Xtrackers Russell

Very weak diversification

The 3 months correlation between Xtrackers and Xtrackers is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI USA and Xtrackers Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Russell 2000 and Xtrackers MSCI 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 MSCI USA are associated (or correlated) with Xtrackers Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Russell 2000 has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and Xtrackers Russell go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and Xtrackers Russell

Assuming the 90 days trading horizon Xtrackers MSCI is expected to generate 1391.0 times less return on investment than Xtrackers Russell. In addition to that, Xtrackers MSCI is 1.22 times more volatile than Xtrackers Russell 2000. It trades about 0.0 of its total potential returns per unit of risk. Xtrackers Russell 2000 is currently generating about 0.32 per unit of volatility. If you would invest  2,607,100  in Xtrackers Russell 2000 on October 24, 2024 and sell it today you would earn a total of  139,450  from holding Xtrackers Russell 2000 or generate 5.35% return on investment over 90 days.

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

Xtrackers MSCI USA  vs.  Xtrackers Russell 2000

Xtrackers MSCI USA

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI USA are ranked lower than 10 (%) 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.

Xtrackers Russell 2000

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Russell 2000 are ranked lower than 9 (%) 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.

Pair Trading with Xtrackers MSCI and Xtrackers Russell

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

The idea behind Xtrackers MSCI USA and Xtrackers Russell 2000 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.