Correlation Between WisdomTree China and Invesco China

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

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

Diversification Opportunities for WisdomTree China and Invesco China

0.98

Correlation Coefficient

WisdomTree China  Invesco China

Almost no diversification

The 3 months correlation between WisdomTree and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding WisdomTree China ex State Owne 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 WisdomTree 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 WisdomTree China ex State Owned 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 WisdomTree China i.e., WisdomTree China and Invesco China go up and down completely randomly.

Pair Corralation between WisdomTree China and Invesco China

Given the investment horizon of 90 days WisdomTree China ex State Owned is expected to generate 0.81 times more return on investment than Invesco China. However, WisdomTree China ex State Owned is 1.23 times less risky than Invesco China. It trades about 0.13 of its potential returns per unit of risk. Invesco China Technology is currently generating about 0.09 per unit of risk. If you would invest  3,009  in WisdomTree China ex State Owned on December 30, 2024 and sell it today you would earn a total of  406.00  from holding WisdomTree China ex State Owned or generate 13.49% return on investment over 90 days.

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

WisdomTree China ex State Owne  vs.  Invesco China Technology

WisdomTree China

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree China ex State Owned are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak basic indicators, WisdomTree China exhibited solid returns over the last few months and may actually be approaching a breakup point.

Invesco China Technology

Risk-Adjusted Performance

OK

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 may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with WisdomTree China and Invesco China

The main advantage of trading using opposite WisdomTree China and Invesco China positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if WisdomTree China 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 WisdomTree China ex State Owned 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.