Correlation Between Xtrackers MSCI and Xtrackers California

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

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

Diversification Opportunities for Xtrackers MSCI and Xtrackers California

0.18

Correlation Coefficient

Xtrackers MSCI  Xtrackers California

Average diversification

The 3 months correlation between Xtrackers and Xtrackers is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI EAFE and Xtrackers California Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers California 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 EAFE are associated (or correlated) with Xtrackers California. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers California has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and Xtrackers California go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and Xtrackers California

Given the investment horizon of 90 days Xtrackers MSCI EAFE is expected to generate 3.54 times more return on investment than Xtrackers California. However, Xtrackers MSCI is 3.54 times more volatile than Xtrackers California Municipal. It trades about 0.02 of its potential returns per unit of risk. Xtrackers California Municipal is currently generating about 0.05 per unit of risk. If you would invest  3,087  in Xtrackers MSCI EAFE on February 5, 2024 and sell it today you would earn a total of  11.00  from holding Xtrackers MSCI EAFE or generate 0.36% return on investment over 90 days.

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

Xtrackers MSCI EAFE  vs.  Xtrackers California Municipal

Xtrackers MSCI EAFE

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Xtrackers MSCI is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Xtrackers California

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers California Municipal has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Xtrackers California is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Xtrackers MSCI and Xtrackers California

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

The idea behind Xtrackers MSCI EAFE and Xtrackers California Municipal 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.