Correlation Between Xtrackers and IShares Nikkei

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

By analyzing existing cross correlation between Xtrackers SP and iShares Nikkei 225, you can compare the effects of market volatilities on Xtrackers and IShares Nikkei 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 with a short position of IShares Nikkei. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and IShares Nikkei.

Diversification Opportunities for Xtrackers and IShares Nikkei

0.41

Correlation Coefficient

Xtrackers  IShares Nikkei

Very weak diversification

The 3 months correlation between Xtrackers and IShares is 0.41. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers SP and iShares Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Nikkei 225 and Xtrackers 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 SP are associated (or correlated) with IShares Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Nikkei 225 has no effect on the direction of Xtrackers i.e., Xtrackers and IShares Nikkei go up and down completely randomly.

Pair Corralation between Xtrackers and IShares Nikkei

Assuming the 90 days trading horizon Xtrackers SP is expected to generate 1.42 times more return on investment than IShares Nikkei. However, Xtrackers is 1.42 times more volatile than iShares Nikkei 225. It trades about 0.1 of its potential returns per unit of risk. iShares Nikkei 225 is currently generating about 0.05 per unit of risk. If you would invest  11,644  in Xtrackers SP on September 26, 2024 and sell it today you would earn a total of  11,321  from holding Xtrackers SP or generate 97.23% return on investment over 90 days.

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

Xtrackers SP  vs.  iShares Nikkei 225

Xtrackers SP

Risk-Adjusted Performance

11 of 100

Good

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

iShares Nikkei 225

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, IShares Nikkei 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 and IShares Nikkei

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

The idea behind Xtrackers SP and iShares Nikkei 225 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.