Can any of the company-specific risk be diversified away by investing in both Xtrackers ShortDAX and Ensign 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 ShortDAX and Ensign into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xtrackers ShortDAX and The Ensign Group, you can compare the effects of market volatilities on Xtrackers ShortDAX and Ensign 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 ShortDAX with a short position of Ensign. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers ShortDAX and Ensign.
Diversification Opportunities for Xtrackers ShortDAX and Ensign
The 3 months correlation between Xtrackers and Ensign is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers - ShortDAX and The Ensign Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ensign Group and Xtrackers ShortDAX 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 ShortDAX are associated (or correlated) with Ensign. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ensign Group has no effect on the direction of Xtrackers ShortDAX i.e., Xtrackers ShortDAX and Ensign go up and down completely randomly.
Pair Corralation between Xtrackers ShortDAX and Ensign
Assuming the 90 days trading horizon Xtrackers ShortDAX is expected to under-perform the Ensign. In addition to that, Xtrackers ShortDAX is 1.01 times more volatile than The Ensign Group. It trades about -0.71 of its total potential returns per unit of risk. The Ensign Group is currently generating about 0.28 per unit of volatility. If you would invest 9,400 in The Ensign Group on September 7, 2023 and sell it today you would earn a total of 600.00 from holding The Ensign Group or generate 6.38% return on investment over 90 days.
Over the last 90 days Xtrackers ShortDAX has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers ShortDAX is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Compared to the overall equity markets, risk-adjusted returns on investments in The Ensign Group are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Ensign reported solid returns over the last few months and may actually be approaching a breakup point.
The main advantage of trading using opposite Xtrackers ShortDAX and Ensign positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers ShortDAX position performs unexpectedly, Ensign 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 Ensign will offset losses from the drop in Ensign's long position.
The idea behind Xtrackers ShortDAX and The Ensign Group 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.
Check out your portfolio center.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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.
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