Correlation Between Xtrackers California and VCRM

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

By analyzing existing cross correlation between Xtrackers California Municipal and VCRM, you can compare the effects of market volatilities on Xtrackers California and VCRM 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 California with a short position of VCRM. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers California and VCRM.

Diversification Opportunities for Xtrackers California and VCRM

0.71

Correlation Coefficient

Xtrackers California  VCRM

Poor diversification

The 3 months correlation between Xtrackers and VCRM is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers California Municipal and VCRM in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VCRM and Xtrackers California 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 California Municipal are associated (or correlated) with VCRM. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VCRM has no effect on the direction of Xtrackers California i.e., Xtrackers California and VCRM go up and down completely randomly.

Pair Corralation between Xtrackers California and VCRM

Allowing for the 90-day total investment horizon Xtrackers California is expected to generate 5.41 times less return on investment than VCRM. In addition to that, Xtrackers California is 1.45 times more volatile than VCRM. It trades about 0.01 of its total potential returns per unit of risk. VCRM is currently generating about 0.06 per unit of volatility. If you would invest  7,532  in VCRM on September 17, 2024 and sell it today you would earn a total of  15.00  from holding VCRM or generate 0.2% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	26.15%
Values	Daily Returns

Xtrackers California Municipal  vs.  VCRM

Xtrackers California

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers California Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xtrackers California is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

VCRM

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in VCRM are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, VCRM is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Xtrackers California and VCRM

The main advantage of trading using opposite Xtrackers California and VCRM positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers California position performs unexpectedly, VCRM 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 VCRM will offset losses from the drop in VCRM's long position.

The idea behind Xtrackers California Municipal and VCRM 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 Bond Analysis module to evaluate and analyze corporate bonds as a potential investment for your portfolios..