Correlation Between Principal Value and DBX ETF

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

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

Diversification Opportunities for Principal Value and DBX ETF

0.96

Correlation Coefficient

Principal Value  DBX ETF

Almost no diversification

The 3 months correlation between Principal and DBX is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Principal Value ETF and DBX ETF Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on DBX ETF Trust and Principal Value 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 Principal Value ETF are associated (or correlated) with DBX ETF. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of DBX ETF Trust has no effect on the direction of Principal Value i.e., Principal Value and DBX ETF go up and down completely randomly.

Pair Corralation between Principal Value and DBX ETF

Allowing for the 90-day total investment horizon Principal Value is expected to generate 1.43 times less return on investment than DBX ETF. But when comparing it to its historical volatility, Principal Value ETF is 1.11 times less risky than DBX ETF. It trades about 0.16 of its potential returns per unit of risk. DBX ETF Trust is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,569  in DBX ETF Trust on February 6, 2025 and sell it today you would earn a total of  287.40  from holding DBX ETF Trust or generate 11.19% return on investment over 90 days.

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

Principal Value ETF  vs.  DBX ETF Trust

Principal Value ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Value ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

DBX ETF Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days DBX ETF Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Etf's fundamental indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with Principal Value and DBX ETF

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

The idea behind Principal Value ETF and DBX ETF Trust 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.