Correlation Between Xtrackers California and IAC

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

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

Diversification Opportunities for Xtrackers California and IAC

0.48

Correlation Coefficient

Xtrackers California  IAC

Very weak diversification

The 3 months correlation between Xtrackers and IAC is 0.48. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers California Municipal and IAC Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on IAC Inc and Xtrackers California 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 California Municipal are associated (or correlated) with IAC. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of IAC Inc has no effect on the direction of Xtrackers California i.e., Xtrackers California and IAC go up and down completely randomly.

Pair Corralation between Xtrackers California and IAC

Allowing for the 90-day total investment horizon Xtrackers California Municipal is expected to generate 0.2 times more return on investment than IAC. However, Xtrackers California Municipal is 4.92 times less risky than IAC. It trades about -0.14 of its potential returns per unit of risk. IAC Inc is currently generating about -0.17 per unit of risk. If you would invest  2,517  in Xtrackers California Municipal on January 25, 2024 and sell it today you would lose (22.00) from holding Xtrackers California Municipal or give up 0.87% of portfolio value over 90 days.

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

Xtrackers California Municipal  vs.  IAC Inc

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.

IAC Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days IAC Inc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IAC is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Xtrackers California and IAC

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

The idea behind Xtrackers California Municipal and IAC Inc 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.