Correlation Between Xtrackers MSCI and Xtrackers Nikkei

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

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

Diversification Opportunities for Xtrackers MSCI and Xtrackers Nikkei

0.32

Correlation Coefficient

Xtrackers MSCI  Xtrackers Nikkei

Weak diversification

The 3 months correlation between Xtrackers and Xtrackers is 0.32. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI and Xtrackers Nikkei 225 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers Nikkei 225 and Xtrackers MSCI 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 MSCI are associated (or correlated) with Xtrackers Nikkei. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers Nikkei 225 has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and Xtrackers Nikkei go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and Xtrackers Nikkei

Assuming the 90 days trading horizon Xtrackers MSCI is expected to generate 1.03 times less return on investment than Xtrackers Nikkei. In addition to that, Xtrackers MSCI is 1.21 times more volatile than Xtrackers Nikkei 225. It trades about 0.07 of its total potential returns per unit of risk. Xtrackers Nikkei 225 is currently generating about 0.08 per unit of volatility. If you would invest  2,408  in Xtrackers Nikkei 225 on September 12, 2024 and sell it today you would earn a total of  138.00  from holding Xtrackers Nikkei 225 or generate 5.73% return on investment over 90 days.

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

Xtrackers MSCI  vs.  Xtrackers Nikkei 225

Xtrackers MSCI

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking signals, Xtrackers MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Xtrackers Nikkei 225

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Nikkei 225 are ranked lower than 6 (%) 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.

Pair Trading with Xtrackers MSCI and Xtrackers Nikkei

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

The idea behind Xtrackers MSCI and Xtrackers Nikkei 225 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..