Correlation Between IShares Nikkei and LG DAX
Can any of the company-specific risk be diversified away by investing in both IShares Nikkei and LG DAX 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 IShares Nikkei and LG DAX into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Nikkei 225 and LG DAX Daily, you can compare the effects of market volatilities on IShares Nikkei and LG DAX 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 IShares Nikkei with a short position of LG DAX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Nikkei and LG DAX.
Diversification Opportunities for IShares Nikkei and LG DAX
-0.54 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between IShares and DES2 is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding iShares Nikkei 225 and LG DAX Daily in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on LG DAX Daily and IShares Nikkei 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 iShares Nikkei 225 are associated (or correlated) with LG DAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of LG DAX Daily has no effect on the direction of IShares Nikkei i.e., IShares Nikkei and LG DAX go up and down completely randomly.
Pair Corralation between IShares Nikkei and LG DAX
Assuming the 90 days trading horizon IShares Nikkei is expected to generate 4.04 times less return on investment than LG DAX. But when comparing it to its historical volatility, iShares Nikkei 225 is 1.67 times less risky than LG DAX. It trades about 0.01 of its potential returns per unit of risk. LG DAX Daily is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 97.00 in LG DAX Daily on August 31, 2024 and sell it today you would earn a total of 1.00 from holding LG DAX Daily or generate 1.03% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 95.65% |
| Values | Daily Returns |
iShares Nikkei 225 vs. LG DAX Daily
Performance |
| Timeline |
| iShares Nikkei 225 |
| LG DAX Daily |
IShares Nikkei and LG DAX Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Nikkei and LG DAX
The main advantage of trading using opposite IShares Nikkei and LG DAX positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Nikkei position performs unexpectedly, LG DAX 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 LG DAX will offset losses from the drop in LG DAX's long position.| IShares Nikkei vs. UBS Fund Solutions | IShares Nikkei vs. Xtrackers II | IShares Nikkei vs. Xtrackers Nikkei 225 | IShares Nikkei vs. iShares VII PLC |
| LG DAX vs. LG DAX Daily | LG DAX vs. iShares Govt Bond | LG DAX vs. Amundi MSCI Europe | LG DAX vs. iShares Global AAA AA |
Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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