Correlation Between FlexShares International and FlexShares Quality

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

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

Diversification Opportunities for FlexShares International and FlexShares Quality

0.01

Correlation Coefficient

FlexShares International  FlexShares Quality

Significant diversification

The 3 months correlation between FlexShares and FlexShares is 0.01. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and FlexShares Quality Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Quality and FlexShares International 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 FlexShares International Quality are associated (or correlated) with FlexShares Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Quality has no effect on the direction of FlexShares International i.e., FlexShares International and FlexShares Quality go up and down completely randomly.

Pair Corralation between FlexShares International and FlexShares Quality

Given the investment horizon of 90 days FlexShares International Quality is expected to under-perform the FlexShares Quality. In addition to that, FlexShares International is 1.93 times more volatile than FlexShares Quality Dividend. It trades about -0.01 of its total potential returns per unit of risk. FlexShares Quality Dividend is currently generating about 0.19 per unit of volatility. If you would invest  6,900  in FlexShares Quality Dividend on September 2, 2024 and sell it today you would earn a total of  471.00  from holding FlexShares Quality Dividend or generate 6.83% return on investment over 90 days.

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

FlexShares International Quali  vs.  FlexShares Quality Dividend

FlexShares International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares International Quality has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong fundamental indicators, FlexShares International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

FlexShares Quality

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Dividend are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile technical and fundamental indicators, FlexShares Quality may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with FlexShares International and FlexShares Quality

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

The idea behind FlexShares International Quality and FlexShares Quality Dividend 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.