Correlation Between Invesco SP and FlexShares STOXX

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

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

Diversification Opportunities for Invesco SP and FlexShares STOXX

-0.23

Correlation Coefficient

Invesco SP  FlexShares STOXX

Very good diversification

The 3 months correlation between Invesco and FlexShares is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP Emerging and FlexShares STOXX Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares STOXX Global and Invesco SP 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 SP Emerging are associated (or correlated) with FlexShares STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares STOXX Global has no effect on the direction of Invesco SP i.e., Invesco SP and FlexShares STOXX go up and down completely randomly.

Pair Corralation between Invesco SP and FlexShares STOXX

Given the investment horizon of 90 days Invesco SP Emerging is expected to under-perform the FlexShares STOXX. In addition to that, Invesco SP is 1.3 times more volatile than FlexShares STOXX Global. It trades about -0.08 of its total potential returns per unit of risk. FlexShares STOXX Global is currently generating about 0.03 per unit of volatility. If you would invest  16,976  in FlexShares STOXX Global on December 22, 2024 and sell it today you would earn a total of  210.00  from holding FlexShares STOXX Global or generate 1.24% return on investment over 90 days.

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

Invesco SP Emerging  vs.  FlexShares STOXX Global

Invesco SP Emerging

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco SP Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Invesco SP is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

FlexShares STOXX Global

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares STOXX Global are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical and fundamental indicators, FlexShares STOXX is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Invesco SP and FlexShares STOXX

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

The idea behind Invesco SP Emerging and FlexShares STOXX Global 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.