Correlation Between Xtrackers Nikkei and Leverage Shares

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

By analyzing existing cross correlation between Xtrackers Nikkei 225 and Leverage Shares 3x, you can compare the effects of market volatilities on Xtrackers Nikkei and Leverage Shares 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 Xtrackers Nikkei with a short position of Leverage Shares. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and Leverage Shares.

Diversification Opportunities for Xtrackers Nikkei and Leverage Shares

0.56

Correlation Coefficient

Xtrackers Nikkei  Leverage Shares

Very weak diversification

The 3 months correlation between Xtrackers and Leverage is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and Leverage Shares 3x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Leverage Shares 3x and Xtrackers Nikkei 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 Xtrackers Nikkei 225 are associated (or correlated) with Leverage Shares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Leverage Shares 3x has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and Leverage Shares go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and Leverage Shares

Assuming the 90 days trading horizon Xtrackers Nikkei 225 is expected to under-perform the Leverage Shares. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers Nikkei 225 is 3.02 times less risky than Leverage Shares. The etf trades about -0.02 of its potential returns per unit of risk. The Leverage Shares 3x is currently generating about 0.2 of returns per unit of risk over similar time horizon. If you would invest  9,408  in Leverage Shares 3x on September 26, 2024 and sell it today you would earn a total of  4,082  from holding Leverage Shares 3x or generate 43.39% return on investment over 90 days.

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

Xtrackers Nikkei 225  vs.  Leverage Shares 3x

Xtrackers Nikkei 225

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Xtrackers Nikkei is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Leverage Shares 3x

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Leverage Shares 3x are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile technical and fundamental indicators, Leverage Shares exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Xtrackers Nikkei and Leverage Shares

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

The idea behind Xtrackers Nikkei 225 and Leverage Shares 3x 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.