Correlation Between Invesco China and KraneShares SSE

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

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

Diversification Opportunities for Invesco China and KraneShares SSE

0.88

Correlation Coefficient

Invesco China  KraneShares SSE

Very poor diversification

The 3 months correlation between Invesco and KraneShares is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Invesco China Technology and KraneShares SSE STAR in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on KraneShares SSE STAR and Invesco China 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 Invesco China Technology are associated (or correlated) with KraneShares SSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of KraneShares SSE STAR has no effect on the direction of Invesco China i.e., Invesco China and KraneShares SSE go up and down completely randomly.

Pair Corralation between Invesco China and KraneShares SSE

Given the investment horizon of 90 days Invesco China Technology is expected to generate 0.65 times more return on investment than KraneShares SSE. However, Invesco China Technology is 1.54 times less risky than KraneShares SSE. It trades about 0.08 of its potential returns per unit of risk. KraneShares SSE STAR is currently generating about 0.05 per unit of risk. If you would invest  3,330  in Invesco China Technology on December 7, 2024 and sell it today you would earn a total of  1,622  from holding Invesco China Technology or generate 48.71% return on investment over 90 days.

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

Invesco China Technology  vs.  KraneShares SSE STAR

Invesco China Technology

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco China Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Invesco China reported solid returns over the last few months and may actually be approaching a breakup point.

KraneShares SSE STAR

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares SSE STAR are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, KraneShares SSE is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Invesco China and KraneShares SSE

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

The idea behind Invesco China Technology and KraneShares SSE STAR 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.