Correlation Between Xtrackers Nikkei and Lyxor 1

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Can any of the company-specific risk be diversified away by investing in both Xtrackers Nikkei and Lyxor 1 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 Nikkei and Lyxor 1 into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Xtrackers Nikkei 225 and Lyxor 1 , you can compare the effects of market volatilities on Xtrackers Nikkei and Lyxor 1 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 Nikkei with a short position of Lyxor 1. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and Lyxor 1.

Diversification Opportunities for Xtrackers Nikkei and Lyxor 1

0.5
  Correlation Coefficient

Very weak diversification

The 3 months correlation between Xtrackers and Lyxor is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and Lyxor 1 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor 1 and Xtrackers Nikkei 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 Nikkei 225 are associated (or correlated) with Lyxor 1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor 1 has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and Lyxor 1 go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and Lyxor 1

Assuming the 90 days trading horizon Xtrackers Nikkei 225 is expected to generate 1.08 times more return on investment than Lyxor 1. However, Xtrackers Nikkei is 1.08 times more volatile than Lyxor 1 . It trades about 0.09 of its potential returns per unit of risk. Lyxor 1 is currently generating about 0.09 per unit of risk. If you would invest  2,121  in Xtrackers Nikkei 225 on February 26, 2024 and sell it today you would earn a total of  231.00  from holding Xtrackers Nikkei 225 or generate 10.89% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Xtrackers Nikkei 225  vs.  Lyxor 1

 Performance 
       Timeline  
Xtrackers Nikkei 225 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Xtrackers Nikkei 225 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable forward-looking indicators, Xtrackers Nikkei is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.
Lyxor 1 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Lyxor 1 has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Lyxor 1 is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Xtrackers Nikkei and Lyxor 1 Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Xtrackers Nikkei and Lyxor 1

The main advantage of trading using opposite Xtrackers Nikkei and Lyxor 1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Xtrackers Nikkei position performs unexpectedly, Lyxor 1 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 Lyxor 1 will offset losses from the drop in Lyxor 1's long position.
The idea behind Xtrackers Nikkei 225 and Lyxor 1 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..

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