Correlation Between Xtrackers MSCI and Invesco SP

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

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

Diversification Opportunities for Xtrackers MSCI and Invesco SP

0.88

Correlation Coefficient

Xtrackers MSCI  Invesco SP

Very poor diversification

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

Pair Corralation between Xtrackers MSCI and Invesco SP

Given the investment horizon of 90 days Xtrackers MSCI is expected to generate 1.47 times less return on investment than Invesco SP. But when comparing it to its historical volatility, Xtrackers MSCI EAFE is 1.42 times less risky than Invesco SP. It trades about 0.16 of its potential returns per unit of risk. Invesco SP International is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  4,079  in Invesco SP International on December 21, 2024 and sell it today you would earn a total of  427.00  from holding Invesco SP International or generate 10.47% return on investment over 90 days.

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

Xtrackers MSCI EAFE  vs.  Invesco SP International

Xtrackers MSCI EAFE

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI EAFE are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite nearly uncertain technical and fundamental indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Invesco SP International

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP International are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Xtrackers MSCI and Invesco SP

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

The idea behind Xtrackers MSCI EAFE and Invesco SP International 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.