Correlation Between Vanguard International and Xtrackers MSCI

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

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

Diversification Opportunities for Vanguard International and Xtrackers MSCI

0.96

Correlation Coefficient

Vanguard International  Xtrackers MSCI

Almost no diversification

The 3 months correlation between Vanguard and Xtrackers is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard International High and Xtrackers MSCI EAFE in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Xtrackers MSCI EAFE and Vanguard International 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 Vanguard International High 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 EAFE has no effect on the direction of Vanguard International i.e., Vanguard International and Xtrackers MSCI go up and down completely randomly.

Pair Corralation between Vanguard International and Xtrackers MSCI

Given the investment horizon of 90 days Vanguard International High is expected to generate 1.08 times more return on investment than Xtrackers MSCI. However, Vanguard International is 1.08 times more volatile than Xtrackers MSCI EAFE. It trades about 0.01 of its potential returns per unit of risk. Xtrackers MSCI EAFE is currently generating about -0.01 per unit of risk. If you would invest  6,878  in Vanguard International High on February 3, 2024 and sell it today you would earn a total of  2.00  from holding Vanguard International High or generate 0.03% return on investment over 90 days.

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

Vanguard International High  vs.  Xtrackers MSCI EAFE

Vanguard International

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard International High are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly uncertain primary indicators, Vanguard International may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Xtrackers MSCI EAFE

Risk-Adjusted Performance

9 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, Xtrackers MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard International and Xtrackers MSCI

The main advantage of trading using opposite Vanguard International and Xtrackers MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard International 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 Vanguard International High and Xtrackers MSCI EAFE 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 Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.