Correlation Between Lyxor SMI and Vanguard FTSE

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

Diversification Opportunities for Lyxor SMI and Vanguard FTSE

-0.89
  Correlation Coefficient

Pay attention - limited upside

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

Pair Corralation between Lyxor SMI and Vanguard FTSE

Assuming the 90 days trading horizon Lyxor SMI Daily is expected to under-perform the Vanguard FTSE. In addition to that, Lyxor SMI is 1.75 times more volatile than Vanguard FTSE Developed. It trades about -0.02 of its total potential returns per unit of risk. Vanguard FTSE Developed is currently generating about 0.02 per unit of volatility. If you would invest  3,504  in Vanguard FTSE Developed on September 2, 2024 and sell it today you would earn a total of  177.00  from holding Vanguard FTSE Developed or generate 5.05% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Lyxor SMI Daily  vs.  Vanguard FTSE Developed

 Performance 
       Timeline  
Lyxor SMI Daily 

Risk-Adjusted Performance

8 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor SMI Daily are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal basic indicators, Lyxor SMI may actually be approaching a critical reversion point that can send shares even higher in January 2025.
Vanguard FTSE Developed 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Vanguard FTSE Developed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard FTSE is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Lyxor SMI and Vanguard FTSE Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Lyxor SMI and Vanguard FTSE

The main advantage of trading using opposite Lyxor SMI and Vanguard FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lyxor SMI position performs unexpectedly, Vanguard FTSE 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 Vanguard FTSE will offset losses from the drop in Vanguard FTSE's long position.
The idea behind Lyxor SMI Daily and Vanguard FTSE Developed 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.

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