Correlation Between Materials Select and Xtrackers RREEF

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

By analyzing existing cross correlation between Materials Select Sector and Xtrackers RREEF Global, you can compare the effects of market volatilities on Materials Select and Xtrackers RREEF 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 Materials Select with a short position of Xtrackers RREEF. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and Xtrackers RREEF.

Diversification Opportunities for Materials Select and Xtrackers RREEF

0.81

Correlation Coefficient

Materials Select  Xtrackers RREEF

Very poor diversification

The 3 months correlation between Materials and Xtrackers is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and Xtrackers RREEF Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers RREEF Global and Materials Select 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 Materials Select Sector are associated (or correlated) with Xtrackers RREEF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers RREEF Global has no effect on the direction of Materials Select i.e., Materials Select and Xtrackers RREEF go up and down completely randomly.

Pair Corralation between Materials Select and Xtrackers RREEF

Considering the 90-day investment horizon Materials Select Sector is expected to generate 0.78 times more return on investment than Xtrackers RREEF. However, Materials Select Sector is 1.29 times less risky than Xtrackers RREEF. It trades about 0.01 of its potential returns per unit of risk. Xtrackers RREEF Global is currently generating about -0.05 per unit of risk. If you would invest  9,386  in Materials Select Sector on August 30, 2024 and sell it today you would earn a total of  44.00  from holding Materials Select Sector or generate 0.47% return on investment over 90 days.

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

Materials Select Sector  vs.  Xtrackers RREEF Global

Materials Select Sector

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Materials Select Sector are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Xtrackers RREEF Global

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers RREEF Global has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical and fundamental indicators, Xtrackers RREEF is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Materials Select and Xtrackers RREEF

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

The idea behind Materials Select Sector and Xtrackers RREEF Global 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.