Correlation Between FlexShares Quality and FlexShares Developed

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

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

Diversification Opportunities for FlexShares Quality and FlexShares Developed

-0.42

Correlation Coefficient

FlexShares Quality  FlexShares Developed

Very good diversification

The 3 months correlation between FlexShares and FlexShares is -0.42. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares Quality Low and FlexShares Developed Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Developed and FlexShares Quality 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 Quality Low are associated (or correlated) with FlexShares Developed. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Developed has no effect on the direction of FlexShares Quality i.e., FlexShares Quality and FlexShares Developed go up and down completely randomly.

Pair Corralation between FlexShares Quality and FlexShares Developed

Considering the 90-day investment horizon FlexShares Quality Low is expected to generate 0.86 times more return on investment than FlexShares Developed. However, FlexShares Quality Low is 1.16 times less risky than FlexShares Developed. It trades about 0.07 of its potential returns per unit of risk. FlexShares Developed Markets is currently generating about -0.12 per unit of risk. If you would invest  6,621  in FlexShares Quality Low on September 13, 2024 and sell it today you would earn a total of  143.00  from holding FlexShares Quality Low or generate 2.16% return on investment over 90 days.

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

FlexShares Quality Low  vs.  FlexShares Developed Markets

FlexShares Quality Low

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares Quality Low are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable essential indicators, FlexShares Quality is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

FlexShares Developed

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares Developed Markets has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, FlexShares Developed is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with FlexShares Quality and FlexShares Developed

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

The idea behind FlexShares Quality Low and FlexShares Developed Markets 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 Idea Analyzer module to analyze all characteristics, volatility and risk-adjusted return of Macroaxis ideas.