Correlation Between Xtrackers Nikkei and Lyxor TIPS

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

Diversification Opportunities for Xtrackers Nikkei and Lyxor TIPS

0.21

Correlation Coefficient

Xtrackers Nikkei  Lyxor TIPS

Modest diversification

The 3 months correlation between Xtrackers and Lyxor is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and Lyxor TIPS DR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor TIPS DR 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 Lyxor TIPS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor TIPS DR has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and Lyxor TIPS go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and Lyxor TIPS

Assuming the 90 days trading horizon Xtrackers Nikkei 225 is expected to generate 2.27 times more return on investment than Lyxor TIPS. However, Xtrackers Nikkei is 2.27 times more volatile than Lyxor TIPS DR. It trades about 0.04 of its potential returns per unit of risk. Lyxor TIPS DR is currently generating about 0.02 per unit of risk. If you would invest  2,008  in Xtrackers Nikkei 225 on September 3, 2024 and sell it today you would earn a total of  462.00  from holding Xtrackers Nikkei 225 or generate 23.01% return on investment over 90 days.

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

Xtrackers Nikkei 225  vs.  Lyxor TIPS DR

Xtrackers Nikkei 225

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Nikkei 225 are ranked lower than 2 (%) 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 current stock price disturbance, may contribute to mid-run losses for the stockholders.

Lyxor TIPS DR

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor TIPS DR are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Lyxor TIPS is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Xtrackers Nikkei and Lyxor TIPS

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

The idea behind Xtrackers Nikkei 225 and Lyxor TIPS DR 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 Global Markets Map module to get a quick overview of global market snapshot using zoomable world map. Drill down to check world indexes.