Correlation Between IShares STOXX and Xtrackers MSCI

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

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

Diversification Opportunities for IShares STOXX and Xtrackers MSCI

0.73

Correlation Coefficient

IShares STOXX  Xtrackers MSCI

Poor diversification

The 3 months correlation between IShares and Xtrackers is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding iShares STOXX Europe and Xtrackers MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI and IShares STOXX 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 iShares STOXX Europe are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI has no effect on the direction of IShares STOXX i.e., IShares STOXX and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between IShares STOXX and Xtrackers MSCI

Assuming the 90 days trading horizon iShares STOXX Europe is expected to generate 1.2 times more return on investment than Xtrackers MSCI. However, IShares STOXX is 1.2 times more volatile than Xtrackers MSCI. It trades about 0.09 of its potential returns per unit of risk. Xtrackers MSCI is currently generating about 0.08 per unit of risk. If you would invest  1,967  in iShares STOXX Europe on September 25, 2024 and sell it today you would earn a total of  103.00  from holding iShares STOXX Europe or generate 5.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	89.06%
Values	Daily Returns

iShares STOXX Europe  vs.  Xtrackers MSCI

iShares STOXX Europe

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in iShares STOXX Europe are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares STOXX is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Xtrackers MSCI

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Xtrackers MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with IShares STOXX and Xtrackers MSCI

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

The idea behind iShares STOXX Europe and Xtrackers MSCI 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.