Correlation Between Lyxor MSCI and Lyxor UCITS

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

By analyzing existing cross correlation between Lyxor MSCI China and Lyxor UCITS Stoxx, you can compare the effects of market volatilities on Lyxor MSCI and Lyxor UCITS 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 Lyxor MSCI with a short position of Lyxor UCITS. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lyxor MSCI and Lyxor UCITS.

Diversification Opportunities for Lyxor MSCI and Lyxor UCITS

0.4

Correlation Coefficient

Lyxor MSCI  Lyxor UCITS

Very weak diversification

The 3 months correlation between Lyxor and Lyxor is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor MSCI China and Lyxor UCITS Stoxx in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor UCITS Stoxx and Lyxor MSCI 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 Lyxor MSCI China are associated (or correlated) with Lyxor UCITS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor UCITS Stoxx has no effect on the direction of Lyxor MSCI i.e., Lyxor MSCI and Lyxor UCITS go up and down completely randomly.

Pair Corralation between Lyxor MSCI and Lyxor UCITS

Assuming the 90 days trading horizon Lyxor MSCI China is expected to generate 2.86 times more return on investment than Lyxor UCITS. However, Lyxor MSCI is 2.86 times more volatile than Lyxor UCITS Stoxx. It trades about 0.12 of its potential returns per unit of risk. Lyxor UCITS Stoxx is currently generating about -0.01 per unit of risk. If you would invest  1,270  in Lyxor MSCI China on September 5, 2024 and sell it today you would earn a total of  259.00  from holding Lyxor MSCI China or generate 20.39% return on investment over 90 days.

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

Lyxor MSCI China  vs.  Lyxor UCITS Stoxx

Lyxor MSCI China

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor MSCI China are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Lyxor MSCI showed solid returns over the last few months and may actually be approaching a breakup point.

Lyxor UCITS Stoxx

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Lyxor UCITS Stoxx has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Lyxor UCITS 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 Lyxor MSCI and Lyxor UCITS

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

The idea behind Lyxor MSCI China and Lyxor UCITS Stoxx 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 Transaction History module to view history of all your transactions and understand their impact on performance.