Correlation Between Xtrackers ShortDAX and Trane Technologies

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

Diversification Opportunities for Xtrackers ShortDAX and Trane Technologies

-0.59
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Xtrackers and Trane is -0.59. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers ShortDAX and Trane Technologies plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Trane Technologies plc and Xtrackers ShortDAX 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 ShortDAX are associated (or correlated) with Trane Technologies. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Trane Technologies plc has no effect on the direction of Xtrackers ShortDAX i.e., Xtrackers ShortDAX and Trane Technologies go up and down completely randomly.

Pair Corralation between Xtrackers ShortDAX and Trane Technologies

Assuming the 90 days trading horizon Xtrackers ShortDAX is expected to under-perform the Trane Technologies. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers ShortDAX is 1.01 times less risky than Trane Technologies. The etf trades about -0.03 of its potential returns per unit of risk. The Trane Technologies plc is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  32,990  in Trane Technologies plc on August 31, 2024 and sell it today you would earn a total of  6,310  from holding Trane Technologies plc or generate 19.13% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthVery Weak
Accuracy100.0%
ValuesDaily Returns

Xtrackers ShortDAX  vs.  Trane Technologies plc

 Performance 
       Timeline  
Xtrackers ShortDAX 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Xtrackers ShortDAX has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers ShortDAX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.
Trane Technologies plc 

Risk-Adjusted Performance

13 of 100

 
Weak
 
Strong
Good
Compared to the overall equity markets, risk-adjusted returns on investments in Trane Technologies plc are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain basic indicators, Trane Technologies reported solid returns over the last few months and may actually be approaching a breakup point.

Xtrackers ShortDAX and Trane Technologies Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Xtrackers ShortDAX and Trane Technologies

The main advantage of trading using opposite Xtrackers ShortDAX and Trane Technologies positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers ShortDAX position performs unexpectedly, Trane Technologies 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 Trane Technologies will offset losses from the drop in Trane Technologies' long position.
The idea behind Xtrackers ShortDAX and Trane Technologies plc 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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