Correlation Between Xtrackers International and FlexShares International
Can any of the company-specific risk be diversified away by investing in both Xtrackers International and FlexShares International 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 International and FlexShares International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xtrackers International Real and FlexShares International Quality, you can compare the effects of market volatilities on Xtrackers International and FlexShares International 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 International with a short position of FlexShares International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers International and FlexShares International.
Diversification Opportunities for Xtrackers International and FlexShares International
0.77 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Xtrackers and FlexShares is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers International Real and FlexShares International Quali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares International and Xtrackers International 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 International Real are associated (or correlated) with FlexShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares International has no effect on the direction of Xtrackers International i.e., Xtrackers International and FlexShares International go up and down completely randomly.
Pair Corralation between Xtrackers International and FlexShares International
Given the investment horizon of 90 days Xtrackers International is expected to generate 1.15 times less return on investment than FlexShares International. But when comparing it to its historical volatility, Xtrackers International Real is 1.14 times less risky than FlexShares International. It trades about 0.03 of its potential returns per unit of risk. FlexShares International Quality is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest 2,888 in FlexShares International Quality on September 12, 2024 and sell it today you would earn a total of 92.00 from holding FlexShares International Quality or generate 3.19% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Xtrackers International Real vs. FlexShares International Quali
Performance |
| Timeline |
| Xtrackers International |
| FlexShares International |
Xtrackers International and FlexShares International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Xtrackers International and FlexShares International
The main advantage of trading using opposite Xtrackers International and FlexShares International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers International position performs unexpectedly, FlexShares International 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 FlexShares International will offset losses from the drop in FlexShares International's long position.The idea behind Xtrackers International Real and FlexShares International Quality 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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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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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