Correlation Between IShares MSCI and Invesco China

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

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

Diversification Opportunities for IShares MSCI and Invesco China

0.79

Correlation Coefficient

IShares MSCI  Invesco China

Poor diversification

The 3 months correlation between IShares and Invesco is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI China and Invesco China Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco China Technology and IShares MSCI 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 iShares MSCI China are associated (or correlated) with Invesco China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco China Technology has no effect on the direction of IShares MSCI i.e., IShares MSCI and Invesco China go up and down completely randomly.

Pair Corralation between IShares MSCI and Invesco China

Given the investment horizon of 90 days iShares MSCI China is expected to under-perform the Invesco China. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI China is 1.79 times less risky than Invesco China. The etf trades about -0.02 of its potential returns per unit of risk. The Invesco China Technology is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,095  in Invesco China Technology on December 26, 2024 and sell it today you would earn a total of  421.00  from holding Invesco China Technology or generate 10.28% return on investment over 90 days.

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

iShares MSCI China  vs.  Invesco China Technology

iShares MSCI China

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI China has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Invesco China Technology

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco China Technology are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Invesco China may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with IShares MSCI and Invesco China

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

The idea behind iShares MSCI China and Invesco China Technology 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 Portfolio Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.