Correlation Between Xtrackers LevDAX and Gladstone Investment

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

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

Diversification Opportunities for Xtrackers LevDAX and Gladstone Investment

0.77

Correlation Coefficient

Xtrackers LevDAX  Gladstone Investment

Poor diversification

The 3 months correlation between Xtrackers and Gladstone is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers LevDAX and Gladstone Investment in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Gladstone Investment and Xtrackers LevDAX 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 LevDAX are associated (or correlated) with Gladstone Investment. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Gladstone Investment has no effect on the direction of Xtrackers LevDAX i.e., Xtrackers LevDAX and Gladstone Investment go up and down completely randomly.

Pair Corralation between Xtrackers LevDAX and Gladstone Investment

Assuming the 90 days trading horizon Xtrackers LevDAX is expected to generate 20.03 times less return on investment than Gladstone Investment. But when comparing it to its historical volatility, Xtrackers LevDAX is 1.34 times less risky than Gladstone Investment. It trades about 0.01 of its potential returns per unit of risk. Gladstone Investment is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  1,073  in Gladstone Investment on August 30, 2024 and sell it today you would earn a total of  197.00  from holding Gladstone Investment or generate 18.36% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.44%
Values	Daily Returns

Xtrackers LevDAX  vs.  Gladstone Investment

Xtrackers LevDAX

Risk-Adjusted Performance

0 of 100

Very Weak

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

Gladstone Investment

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Gladstone Investment are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Gladstone Investment reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xtrackers LevDAX and Gladstone Investment

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

The idea behind Xtrackers LevDAX and Gladstone Investment 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.