Correlation Between FlexShares International and Xtrackers MSCI
Can any of the company-specific risk be diversified away by investing in both FlexShares International and Xtrackers 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 FlexShares International and Xtrackers MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between FlexShares International Quality and Xtrackers MSCI EAFE, you can compare the effects of market volatilities on FlexShares International and Xtrackers 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 FlexShares International with a short position of Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares International and Xtrackers MSCI.
Diversification Opportunities for FlexShares International and Xtrackers MSCI
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between FlexShares and Xtrackers is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and Xtrackers MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI EAFE and FlexShares 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 FlexShares International Quality are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI EAFE has no effect on the direction of FlexShares International i.e., FlexShares International and Xtrackers MSCI go up and down completely randomly.
Pair Corralation between FlexShares International and Xtrackers MSCI
Given the investment horizon of 90 days FlexShares International Quality is expected to under-perform the Xtrackers MSCI. But the etf apears to be less risky and, when comparing its historical volatility, FlexShares International Quality is 1.02 times less risky than Xtrackers MSCI. The etf trades about -0.12 of its potential returns per unit of risk. The Xtrackers MSCI EAFE is currently generating about -0.08 of returns per unit of risk over similar time horizon. If you would invest 2,562 in Xtrackers MSCI EAFE on September 3, 2024 and sell it today you would lose (40.00) from holding Xtrackers MSCI EAFE or give up 1.56% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
FlexShares International Quali vs. Xtrackers MSCI EAFE
Performance |
| Timeline |
| FlexShares International |
| Xtrackers MSCI EAFE |
FlexShares International and Xtrackers MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with FlexShares International and Xtrackers MSCI
The main advantage of trading using opposite FlexShares International and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if FlexShares International position performs unexpectedly, Xtrackers 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 Xtrackers MSCI will offset losses from the drop in Xtrackers MSCI's long position.The idea behind FlexShares International Quality and Xtrackers 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.
| Xtrackers MSCI vs. iShares MSCI EAFE | Xtrackers MSCI vs. Vanguard International High | Xtrackers MSCI vs. iShares International Select | Xtrackers MSCI vs. Hartford Multifactor Developed |
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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.
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