Correlation Between VanEck Defense and Invesco MSCI

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

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

Diversification Opportunities for VanEck Defense and Invesco MSCI

-0.58

Correlation Coefficient

VanEck Defense  Invesco MSCI

Excellent diversification

The 3 months correlation between VanEck and Invesco is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Defense ETF and Invesco MSCI Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco MSCI Europe and VanEck Defense 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 VanEck Defense ETF are associated (or correlated) with Invesco MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco MSCI Europe has no effect on the direction of VanEck Defense i.e., VanEck Defense and Invesco MSCI go up and down completely randomly.

Pair Corralation between VanEck Defense and Invesco MSCI

Assuming the 90 days trading horizon VanEck Defense ETF is expected to under-perform the Invesco MSCI. In addition to that, VanEck Defense is 1.7 times more volatile than Invesco MSCI Europe. It trades about -0.03 of its total potential returns per unit of risk. Invesco MSCI Europe is currently generating about 0.01 per unit of volatility. If you would invest  5,563  in Invesco MSCI Europe on September 28, 2024 and sell it today you would earn a total of  2.00  from holding Invesco MSCI Europe or generate 0.04% return on investment over 90 days.

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

VanEck Defense ETF  vs.  Invesco MSCI Europe

VanEck Defense ETF

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Defense ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile basic indicators, VanEck Defense may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco MSCI Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Invesco MSCI is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with VanEck Defense and Invesco MSCI

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

The idea behind VanEck Defense ETF and Invesco MSCI Europe 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.