Correlation Between Xtrackers Nikkei and IncomeShares SP500

Can any of the company-specific risk be diversified away by investing in both Xtrackers Nikkei and IncomeShares SP500 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 IncomeShares SP500 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 IncomeShares SP500 Options, you can compare the effects of market volatilities on Xtrackers Nikkei and IncomeShares SP500 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 IncomeShares SP500. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and IncomeShares SP500.

Diversification Opportunities for Xtrackers Nikkei and IncomeShares SP500

0.14

Correlation Coefficient

Xtrackers Nikkei  IncomeShares SP500

Average diversification

The 3 months correlation between Xtrackers and IncomeShares is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and IncomeShares SP500 Options in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IncomeShares SP500 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 IncomeShares SP500. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IncomeShares SP500 has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and IncomeShares SP500 go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and IncomeShares SP500

Assuming the 90 days trading horizon Xtrackers Nikkei is expected to generate 2.42 times less return on investment than IncomeShares SP500. In addition to that, Xtrackers Nikkei is 1.39 times more volatile than IncomeShares SP500 Options. It trades about 0.02 of its total potential returns per unit of risk. IncomeShares SP500 Options is currently generating about 0.06 per unit of volatility. If you would invest  891.00  in IncomeShares SP500 Options on September 28, 2024 and sell it today you would earn a total of  10.00  from holding IncomeShares SP500 Options or generate 1.12% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	45.16%
Values	Daily Returns

Xtrackers Nikkei 225  vs.  IncomeShares SP500 Options

Xtrackers Nikkei 225

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Nikkei 225 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Xtrackers Nikkei is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

IncomeShares SP500

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IncomeShares SP500 Options are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, IncomeShares SP500 is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Xtrackers Nikkei and IncomeShares SP500

The main advantage of trading using opposite Xtrackers Nikkei and IncomeShares SP500 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers Nikkei position performs unexpectedly, IncomeShares SP500 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 IncomeShares SP500 will offset losses from the drop in IncomeShares SP500's long position.

The idea behind Xtrackers Nikkei 225 and IncomeShares SP500 Options 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.