Correlation Between IShares Edge and Xtrackers Low

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

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

Diversification Opportunities for IShares Edge and Xtrackers Low

0.63

Correlation Coefficient

IShares Edge  Xtrackers Low

Poor diversification

The 3 months correlation between IShares and Xtrackers is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding iShares Edge High and Xtrackers Low Beta in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Low Beta and IShares Edge 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 Edge High are associated (or correlated) with Xtrackers Low. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Low Beta has no effect on the direction of IShares Edge i.e., IShares Edge and Xtrackers Low go up and down completely randomly.

Pair Corralation between IShares Edge and Xtrackers Low

Given the investment horizon of 90 days IShares Edge is expected to generate 1.02 times less return on investment than Xtrackers Low. In addition to that, IShares Edge is 1.19 times more volatile than Xtrackers Low Beta. It trades about 0.09 of its total potential returns per unit of risk. Xtrackers Low Beta is currently generating about 0.11 per unit of volatility. If you would invest  4,656  in Xtrackers Low Beta on September 12, 2024 and sell it today you would earn a total of  19.00  from holding Xtrackers Low Beta or generate 0.41% return on investment over 90 days.

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

iShares Edge High  vs.  Xtrackers Low Beta

iShares Edge High

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Edge High are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental indicators, IShares Edge is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Xtrackers Low Beta

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Low Beta are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, Xtrackers Low is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Edge and Xtrackers Low

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

The idea behind iShares Edge High and Xtrackers Low Beta 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.