Correlation Between XDN and XAS

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

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

Diversification Opportunities for XDN and XAS

-0.12

Correlation Coefficient

XDN  XAS

Good diversification

The 3 months correlation between XDN and XAS is -0.12. Overlapping area represents the amount of risk that can be diversified away by holding XDN and XAS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on XAS and XDN 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 XDN are associated (or correlated) with XAS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of XAS has no effect on the direction of XDN i.e., XDN and XAS go up and down completely randomly.

Pair Corralation between XDN and XAS

Assuming the 90 days trading horizon XDN is expected to generate 4.26 times more return on investment than XAS. However, XDN is 4.26 times more volatile than XAS. It trades about 0.09 of its potential returns per unit of risk. XAS is currently generating about 0.0 per unit of risk. If you would invest  0.01  in XDN on January 30, 2024 and sell it today you would lose (0.01) from holding XDN or give up 72.97% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	57.97%
Values	Daily Returns

XDN  vs.  XAS

XDN

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in XDN are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady basic indicators, XDN exhibited solid returns over the last few months and may actually be approaching a breakup point.

XAS

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days XAS has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, XAS is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with XDN and XAS

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

The idea behind XDN and XAS 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .