Correlation Between Xtrackers FTSE and IShares MSCI

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Can any of the company-specific risk be diversified away by investing in both Xtrackers FTSE and IShares 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 FTSE and IShares MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xtrackers FTSE Developed and iShares MSCI EAFE, you can compare the effects of market volatilities on Xtrackers FTSE and IShares 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 FTSE with a short position of IShares MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers FTSE and IShares MSCI.

Diversification Opportunities for Xtrackers FTSE and IShares MSCI

0.89
  Correlation Coefficient

Very poor diversification

The 3 months correlation between Xtrackers and IShares is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers FTSE Developed and iShares MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares MSCI EAFE and Xtrackers FTSE 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 FTSE Developed are associated (or correlated) with IShares MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares MSCI EAFE has no effect on the direction of Xtrackers FTSE i.e., Xtrackers FTSE and IShares MSCI go up and down completely randomly.

Pair Corralation between Xtrackers FTSE and IShares MSCI

Given the investment horizon of 90 days Xtrackers FTSE Developed is expected to generate 1.05 times more return on investment than IShares MSCI. However, Xtrackers FTSE is 1.05 times more volatile than iShares MSCI EAFE. It trades about 0.19 of its potential returns per unit of risk. iShares MSCI EAFE is currently generating about 0.18 per unit of risk. If you would invest  2,891  in Xtrackers FTSE Developed on September 13, 2024 and sell it today you would earn a total of  64.00  from holding Xtrackers FTSE Developed or generate 2.21% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthStrong
Accuracy100.0%
ValuesDaily Returns

Xtrackers FTSE Developed  vs.  iShares MSCI EAFE

 Performance 
       Timeline  
Xtrackers FTSE Developed 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Xtrackers FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Xtrackers FTSE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.
iShares MSCI EAFE 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days iShares MSCI EAFE has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Xtrackers FTSE and IShares MSCI Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Xtrackers FTSE and IShares MSCI

The main advantage of trading using opposite Xtrackers FTSE and IShares MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers FTSE position performs unexpectedly, IShares 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 IShares MSCI will offset losses from the drop in IShares MSCI's long position.
The idea behind Xtrackers FTSE Developed and iShares MSCI EAFE 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.

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