Correlation Between IShares Core and Invesco AT1

Can any of the company-specific risk be diversified away by investing in both IShares Core and Invesco AT1 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 IShares Core and Invesco AT1 into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Core MSCI and Invesco AT1 Capital, you can compare the effects of market volatilities on IShares Core and Invesco AT1 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 IShares Core with a short position of Invesco AT1. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Core and Invesco AT1.

Diversification Opportunities for IShares Core and Invesco AT1

0.45

Correlation Coefficient

IShares Core  Invesco AT1

Very weak diversification

The 3 months correlation between IShares and Invesco is 0.45. Overlapping area represents the amount of risk that can be diversified away by holding iShares Core MSCI and Invesco AT1 Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco AT1 Capital and IShares Core 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 iShares Core MSCI are associated (or correlated) with Invesco AT1. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco AT1 Capital has no effect on the direction of IShares Core i.e., IShares Core and Invesco AT1 go up and down completely randomly.

Pair Corralation between IShares Core and Invesco AT1

Assuming the 90 days trading horizon iShares Core MSCI is expected to under-perform the Invesco AT1. In addition to that, IShares Core is 1.23 times more volatile than Invesco AT1 Capital. It trades about -0.08 of its total potential returns per unit of risk. Invesco AT1 Capital is currently generating about -0.03 per unit of volatility. If you would invest  1,648  in Invesco AT1 Capital on October 24, 2024 and sell it today you would lose (26.00) from holding Invesco AT1 Capital or give up 1.58% of portfolio value over 90 days.

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

iShares Core MSCI  vs.  Invesco AT1 Capital

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, IShares Core is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Invesco AT1 Capital

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco AT1 Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Invesco AT1 is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares Core and Invesco AT1

The main advantage of trading using opposite IShares Core and Invesco AT1 positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Core position performs unexpectedly, Invesco AT1 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 AT1 will offset losses from the drop in Invesco AT1's long position.

The idea behind iShares Core MSCI and Invesco AT1 Capital 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.