Correlation Between PowerShares EURO and Lyxor MSCI

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

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

Diversification Opportunities for PowerShares EURO and Lyxor MSCI

0.97

Correlation Coefficient

PowerShares EURO  Lyxor MSCI

Almost no diversification

The 3 months correlation between PowerShares and Lyxor is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding PowerShares EURO STOXX and Lyxor MSCI World in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor MSCI World and PowerShares EURO 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 PowerShares EURO STOXX are associated (or correlated) with Lyxor MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor MSCI World has no effect on the direction of PowerShares EURO i.e., PowerShares EURO and Lyxor MSCI go up and down completely randomly.

Pair Corralation between PowerShares EURO and Lyxor MSCI

Assuming the 90 days trading horizon PowerShares EURO is expected to generate 2.4 times less return on investment than Lyxor MSCI. But when comparing it to its historical volatility, PowerShares EURO STOXX is 2.1 times less risky than Lyxor MSCI. It trades about 0.29 of its potential returns per unit of risk. Lyxor MSCI World is currently generating about 0.33 of returns per unit of risk over similar time horizon. If you would invest  79,130  in Lyxor MSCI World on April 24, 2025 and sell it today you would earn a total of  21,730  from holding Lyxor MSCI World or generate 27.46% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

PowerShares EURO STOXX  vs.  Lyxor MSCI World

PowerShares EURO STOXX

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in PowerShares EURO STOXX are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, PowerShares EURO may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Lyxor MSCI World

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor MSCI World are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Lyxor MSCI unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with PowerShares EURO and Lyxor MSCI

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

The idea behind PowerShares EURO STOXX and Lyxor MSCI World 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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.