Are people who live in homogenous neighborhoods that border on ethnically diverse ones (or are even encircled by them) more xenophobic? This socio-spatial constellation, which is known as the “halo effect”-hypothesis, synthesizes two prominent explanations of xenophobia: As the neighborhood itself offers little opportunity for positive intergroup contact, the neighboring ethnically diverse neighborhoods may instill feelings of competition and group threat, which eventually result in xenophobia. This perspective goes beyond classical hypotheses about the contextual effects of population diversity and emphasizes the importance of the geographical embeddedness of neighborhoods. Yet, our analyses based on geo-coded ALLBUS [German General Social Survey] 2014 data neither provide support for the halo effect hypotheses among the general population nor among xenophobia-minded subpopulations. Nevertheless, our study makes a case for the importance of considering local embeddedness of neighborhoods and demonstrates the methodological characteristics and challenges of such a spatial analysis of the geocoded ALLBUS data. We conclude by discussing plausible reasons why our results deviate from earlier American and European studies.