Correlation Between Mnchener Rck and Xtrackers LevDAX

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

By analyzing existing cross correlation between Mnchener Rck AG and Xtrackers LevDAX, you can compare the effects of market volatilities on Mnchener Rck and Xtrackers LevDAX 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 Mnchener Rck with a short position of Xtrackers LevDAX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Mnchener Rck and Xtrackers LevDAX.

Diversification Opportunities for Mnchener Rck and Xtrackers LevDAX

0.59

Correlation Coefficient

Mnchener Rck  Xtrackers LevDAX

Very weak diversification

The 3 months correlation between Mnchener and Xtrackers is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding Mnchener Rck AG and Xtrackers LevDAX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers LevDAX and Mnchener Rck 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 Mnchener Rck AG are associated (or correlated) with Xtrackers LevDAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers LevDAX has no effect on the direction of Mnchener Rck i.e., Mnchener Rck and Xtrackers LevDAX go up and down completely randomly.

Pair Corralation between Mnchener Rck and Xtrackers LevDAX

Assuming the 90 days trading horizon Mnchener Rck is expected to generate 4.87 times less return on investment than Xtrackers LevDAX. But when comparing it to its historical volatility, Mnchener Rck AG is 1.55 times less risky than Xtrackers LevDAX. It trades about 0.05 of its potential returns per unit of risk. Xtrackers LevDAX is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  17,882  in Xtrackers LevDAX on September 14, 2024 and sell it today you would earn a total of  3,208  from holding Xtrackers LevDAX or generate 17.94% return on investment over 90 days.

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

Mnchener Rck AG  vs.  Xtrackers LevDAX

Mnchener Rck AG

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Mnchener Rck AG are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Mnchener Rck is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Xtrackers LevDAX

Risk-Adjusted Performance

11 of 100

Good

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

Pair Trading with Mnchener Rck and Xtrackers LevDAX

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

The idea behind Mnchener Rck AG and Xtrackers LevDAX 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.