Correlation Between Xtrackers ESG and Xtrackers Russell

Can any of the company-specific risk be diversified away by investing in both Xtrackers ESG 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 ESG 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 ESG USD and Xtrackers Russell 2000, you can compare the effects of market volatilities on Xtrackers ESG 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 ESG with a short position of Xtrackers Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers ESG and Xtrackers Russell.

Diversification Opportunities for Xtrackers ESG and Xtrackers Russell

0.82

Correlation Coefficient

Xtrackers ESG  Xtrackers Russell

Very poor diversification

The 3 months correlation between Xtrackers and Xtrackers is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers ESG USD 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 ESG 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 ESG USD 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 ESG i.e., Xtrackers ESG and Xtrackers Russell go up and down completely randomly.

Pair Corralation between Xtrackers ESG and Xtrackers Russell

Assuming the 90 days trading horizon Xtrackers ESG USD is expected to generate 0.23 times more return on investment than Xtrackers Russell. However, Xtrackers ESG USD is 4.41 times less risky than Xtrackers Russell. It trades about -0.09 of its potential returns per unit of risk. Xtrackers Russell 2000 is currently generating about -0.15 per unit of risk. If you would invest  767.00  in Xtrackers ESG USD on October 9, 2024 and sell it today you would lose (3.00) from holding Xtrackers ESG USD or give up 0.39% of portfolio value over 90 days.

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

Xtrackers ESG USD  vs.  Xtrackers Russell 2000

Xtrackers ESG USD

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers ESG USD are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Xtrackers ESG is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

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.

Pair Trading with Xtrackers ESG and Xtrackers Russell

The main advantage of trading using opposite Xtrackers ESG and Xtrackers Russell positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers ESG 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 ESG USD 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.