Correlation Between Leverage Shares and Xtrackers MSCI

Can any of the company-specific risk be diversified away by investing in both Leverage Shares 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 Leverage Shares and Xtrackers MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Leverage Shares 2x and Xtrackers MSCI USA, you can compare the effects of market volatilities on Leverage Shares 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 Leverage Shares with a short position of Xtrackers MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Leverage Shares and Xtrackers MSCI.

Diversification Opportunities for Leverage Shares and Xtrackers MSCI

0.78

Correlation Coefficient

Leverage Shares  Xtrackers MSCI

Poor diversification

The 3 months correlation between Leverage and Xtrackers is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Leverage Shares 2x 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 Leverage Shares 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 Leverage Shares 2x 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 Leverage Shares i.e., Leverage Shares and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between Leverage Shares and Xtrackers MSCI

Assuming the 90 days trading horizon Leverage Shares 2x is expected to generate 3.12 times more return on investment than Xtrackers MSCI. However, Leverage Shares is 3.12 times more volatile than Xtrackers MSCI USA. It trades about 0.22 of its potential returns per unit of risk. Xtrackers MSCI USA is currently generating about 0.19 per unit of risk. If you would invest  529,650  in Leverage Shares 2x on September 12, 2024 and sell it today you would earn a total of  289,000  from holding Leverage Shares 2x or generate 54.56% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.46%
Values	Daily Returns

Leverage Shares 2x  vs.  Xtrackers MSCI USA

Leverage Shares 2x

Risk-Adjusted Performance

17 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Leverage Shares 2x are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Leverage Shares unveiled solid returns over the last few months and may actually be approaching a breakup point.

Xtrackers MSCI USA

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI USA are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers MSCI unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Leverage Shares and Xtrackers MSCI

The main advantage of trading using opposite Leverage Shares and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Leverage Shares 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 Leverage Shares 2x 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.

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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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.