Correlation Between Xtrackers and Lyxor MSCI

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

By analyzing existing cross correlation between Xtrackers SP 500 and Lyxor MSCI World, you can compare the effects of market volatilities on Xtrackers and Lyxor MSCI 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 Lyxor MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers and Lyxor MSCI.

Diversification Opportunities for Xtrackers and Lyxor MSCI

0.96

Correlation Coefficient

Xtrackers  Lyxor MSCI

Almost no diversification

The 3 months correlation between Xtrackers and Lyxor is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers SP 500 and Lyxor MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor MSCI World 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 SP 500 are associated (or correlated) with Lyxor MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor MSCI World has no effect on the direction of Xtrackers i.e., Xtrackers and Lyxor MSCI go up and down completely randomly.

Pair Corralation between Xtrackers and Lyxor MSCI

Assuming the 90 days trading horizon Xtrackers SP 500 is expected to generate 1.16 times more return on investment than Lyxor MSCI. However, Xtrackers is 1.16 times more volatile than Lyxor MSCI World. It trades about 0.21 of its potential returns per unit of risk. Lyxor MSCI World is currently generating about 0.14 per unit of risk. If you would invest  21,087  in Xtrackers SP 500 on September 12, 2024 and sell it today you would earn a total of  3,674  from holding Xtrackers SP 500 or generate 17.42% return on investment over 90 days.

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

Xtrackers SP 500  vs.  Lyxor MSCI World

Xtrackers SP 500

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers unveiled solid returns over the last few months and may actually be approaching a breakup point.

Lyxor MSCI World

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor MSCI World are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Lyxor MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Xtrackers and Lyxor MSCI

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

The idea behind Xtrackers SP 500 and Lyxor MSCI World 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.