Correlation Between NYSE Composite and Xtrackers MSCI

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

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

Diversification Opportunities for NYSE Composite and Xtrackers MSCI

-0.1

Correlation Coefficient

NYSE Composite  Xtrackers MSCI

Good diversification

The 3 months correlation between NYSE and Xtrackers is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Xtrackers MSCI All in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI All and NYSE Composite 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 NYSE Composite are associated (or correlated) with Xtrackers MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers MSCI All has no effect on the direction of NYSE Composite i.e., NYSE Composite and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between NYSE Composite and Xtrackers MSCI

Assuming the 90 days trading horizon NYSE Composite is expected to generate 0.01 times more return on investment than Xtrackers MSCI. However, NYSE Composite is 79.24 times less risky than Xtrackers MSCI. It trades about -0.31 of its potential returns per unit of risk. Xtrackers MSCI All is currently generating about -0.5 per unit of risk. If you would invest  1,813,008  in NYSE Composite on January 20, 2024 and sell it today you would lose (74,199) from holding NYSE Composite or give up 4.09% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	19.05%
Values	Daily Returns

NYSE Composite  vs.  Xtrackers MSCI All

Pair Trading with NYSE Composite and Xtrackers MSCI

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

The idea behind NYSE Composite and Xtrackers MSCI All 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.