Correlation Between IShares VII and Xtrackers LevDAX

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

By analyzing existing cross correlation between iShares VII PLC and Xtrackers LevDAX, you can compare the effects of market volatilities on IShares VII and Xtrackers LevDAX 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 IShares VII with a short position of Xtrackers LevDAX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares VII and Xtrackers LevDAX.

Diversification Opportunities for IShares VII and Xtrackers LevDAX

0.76

Correlation Coefficient

IShares VII  Xtrackers LevDAX

Poor diversification

The 3 months correlation between IShares and Xtrackers is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding iShares VII PLC and Xtrackers LevDAX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers LevDAX and IShares VII 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 iShares VII PLC are associated (or correlated) with Xtrackers LevDAX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Xtrackers LevDAX has no effect on the direction of IShares VII i.e., IShares VII and Xtrackers LevDAX go up and down completely randomly.

Pair Corralation between IShares VII and Xtrackers LevDAX

Assuming the 90 days trading horizon iShares VII PLC is expected to under-perform the Xtrackers LevDAX. But the etf apears to be less risky and, when comparing its historical volatility, iShares VII PLC is 1.54 times less risky than Xtrackers LevDAX. The etf trades about -0.37 of its potential returns per unit of risk. The Xtrackers LevDAX is currently generating about -0.13 of returns per unit of risk over similar time horizon. If you would invest  17,928  in Xtrackers LevDAX on January 26, 2024 and sell it today you would lose (664.00) from holding Xtrackers LevDAX or give up 3.7% of portfolio value over 90 days.

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

iShares VII PLC  vs.  Xtrackers LevDAX

iShares VII PLC

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in iShares VII PLC are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares VII is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Xtrackers LevDAX

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers LevDAX are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, Xtrackers LevDAX may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with IShares VII and Xtrackers LevDAX

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

The idea behind iShares VII PLC and Xtrackers LevDAX 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 Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.