Correlation Between Vanguard and Xtrackers MSCI
Can any of the company-specific risk be diversified away by investing in both Vanguard 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 Vanguard and Xtrackers MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard SP 500 and Xtrackers MSCI USA, you can compare the effects of market volatilities on Vanguard 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 Vanguard with a short position of Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Xtrackers MSCI.
Diversification Opportunities for Vanguard and Xtrackers MSCI
1.0 | Correlation Coefficient |
No risk reduction
The 3 months correlation between Vanguard and Xtrackers is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Xtrackers MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI USA and Vanguard 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 Vanguard SP 500 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 USA has no effect on the direction of Vanguard i.e., Vanguard and Xtrackers MSCI go up and down completely randomly.
Pair Corralation between Vanguard and Xtrackers MSCI
Assuming the 90 days trading horizon Vanguard SP 500 is expected to generate 0.81 times more return on investment than Xtrackers MSCI. However, Vanguard SP 500 is 1.23 times less risky than Xtrackers MSCI. It trades about 0.11 of its potential returns per unit of risk. Xtrackers MSCI USA is currently generating about 0.07 per unit of risk. If you would invest 7,193 in Vanguard SP 500 on August 31, 2024 and sell it today you would earn a total of 2,903 from holding Vanguard SP 500 or generate 40.36% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
Vanguard SP 500 vs. Xtrackers MSCI USA
Performance |
| Timeline |
| Vanguard SP 500 |
| Xtrackers MSCI USA |
Vanguard and Xtrackers MSCI Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard and Xtrackers MSCI
The main advantage of trading using opposite Vanguard and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 Vanguard SP 500 and Xtrackers MSCI USA 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. Xtrackers MSCI USA | Xtrackers MSCI vs. Xtrackers USD Corporate | Xtrackers MSCI vs. Xtrackers MSCI AC | Xtrackers MSCI vs. Xtrackers MSCI World |
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 Headlines Timeline module to stay connected to all market stories and filter out noise. Drill down to analyze hype elasticity.
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