Correlation Between Xtrackers LevDAX and SPDR SP

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

By analyzing existing cross correlation between Xtrackers LevDAX and SPDR SP Materials, you can compare the effects of market volatilities on Xtrackers LevDAX and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers LevDAX and SPDR SP.

Diversification Opportunities for Xtrackers LevDAX and SPDR SP

0.57

Correlation Coefficient

Xtrackers LevDAX  SPDR SP

Very weak diversification

The 3 months correlation between Xtrackers and SPDR is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers LevDAX and SPDR SP Materials in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Materials 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Materials has no effect on the direction of Xtrackers LevDAX i.e., Xtrackers LevDAX and SPDR SP go up and down completely randomly.

Pair Corralation between Xtrackers LevDAX and SPDR SP

Assuming the 90 days trading horizon Xtrackers LevDAX is expected to generate 2.17 times more return on investment than SPDR SP. However, Xtrackers LevDAX is 2.17 times more volatile than SPDR SP Materials. It trades about 0.15 of its potential returns per unit of risk. SPDR SP Materials is currently generating about 0.11 per unit of risk. If you would invest  17,726  in Xtrackers LevDAX on September 12, 2024 and sell it today you would earn a total of  3,204  from holding Xtrackers LevDAX or generate 18.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Xtrackers LevDAX  vs.  SPDR SP Materials

Xtrackers LevDAX

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers LevDAX are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xtrackers LevDAX reported solid returns over the last few months and may actually be approaching a breakup point.

SPDR SP Materials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Materials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, SPDR SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Xtrackers LevDAX and SPDR SP

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

The idea behind Xtrackers LevDAX and SPDR SP Materials 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.

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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.