"It's not a surprise for me not being the odds-on favorite, I think it's a good sign," Ancelotti told a news conference in Glasgow on the eve of Tuesday's opening Group F game against Celtic.
"I think that last year we had even less probability in the statistics to win it. And we have an improved team this season.
"What happened last year will happen again. We are going to compete until the end and, hopefully, we will compete in the final."
Last season, Real Madrid were considered to be the underdogs during their knockout round matches against Paris St Germain, Chelsea and Manchester City as well as in the final showdown with Liverpool but they went on to win a record-extending 14th European Cup title.
"In this competition, Real Madrid have always been respected. The history of the club is part of the history of this competition," Ancelotti said.
"We start with enthusiasm, as always, but you never know what is going to happen. We have to think about the group-stage first, win it and then see what happens after the (break in November and December for the) World Cup."
Ancelotti said that he will probably rotate his squad more often to keep players fresh with Champions League and LaLiga matches overloading the schedule.
The Italian said he was concerned about how the players will cope with the packed schedule once they return from the World Cup in Qatar that kicks off on November 20th.
"Until the World Cup I believe we won't have problems because the players are prepared and motivated. They want to get to the World Cup in good condition," Ancelotti said.
"The question is how the players will return after the World Cup. We just don't know because it is an unique situation."
Real Madrid are grouped together with Leipzig, Shakhtar and Celtic in Champions League Group F.
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