Correlation Between Xtrackers and Invesco JPX

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

By analyzing existing cross correlation between Xtrackers II and Invesco JPX Nikkei 400, you can compare the effects of market volatilities on Xtrackers and Invesco JPX 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 with a short position of Invesco JPX. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and Invesco JPX.

Diversification Opportunities for Xtrackers and Invesco JPX

0.25

Correlation Coefficient

Xtrackers  Invesco JPX

Modest diversification

The 3 months correlation between Xtrackers and Invesco is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers II and Invesco JPX Nikkei 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco JPX Nikkei and Xtrackers 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 II are associated (or correlated) with Invesco JPX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco JPX Nikkei has no effect on the direction of Xtrackers i.e., Xtrackers and Invesco JPX go up and down completely randomly.

Pair Corralation between Xtrackers and Invesco JPX

Assuming the 90 days trading horizon Xtrackers II is expected to generate 47.74 times more return on investment than Invesco JPX. However, Xtrackers is 47.74 times more volatile than Invesco JPX Nikkei 400. It trades about 0.04 of its potential returns per unit of risk. Invesco JPX Nikkei 400 is currently generating about 0.06 per unit of risk. If you would invest  909.00  in Xtrackers II on September 18, 2024 and sell it today you would lose (142.00) from holding Xtrackers II or give up 15.62% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.8%
Values	Daily Returns

Xtrackers II   vs.  Invesco JPX Nikkei 400

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco JPX Nikkei

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco JPX Nikkei 400 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco JPX 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 and Invesco JPX

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

The idea behind Xtrackers II and Invesco JPX Nikkei 400 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.