Correlation Between Invesco MSCI and Vanguard FTSE

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

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

Diversification Opportunities for Invesco MSCI and Vanguard FTSE

0.37

Correlation Coefficient

Invesco MSCI  Vanguard FTSE

Weak diversification

The 3 months correlation between Invesco and Vanguard is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Invesco MSCI Emerging and Vanguard FTSE Developed in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard FTSE Developed and Invesco 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 Invesco MSCI Emerging are associated (or correlated) with Vanguard FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard FTSE Developed has no effect on the direction of Invesco MSCI i.e., Invesco MSCI and Vanguard FTSE go up and down completely randomly.

Pair Corralation between Invesco MSCI and Vanguard FTSE

Assuming the 90 days trading horizon Invesco MSCI is expected to generate 4.18 times less return on investment than Vanguard FTSE. But when comparing it to its historical volatility, Invesco MSCI Emerging is 1.14 times less risky than Vanguard FTSE. It trades about 0.05 of its potential returns per unit of risk. Vanguard FTSE Developed is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  4,678  in Vanguard FTSE Developed on December 25, 2024 and sell it today you would earn a total of  584.00  from holding Vanguard FTSE Developed or generate 12.48% return on investment over 90 days.

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

Invesco MSCI Emerging  vs.  Vanguard FTSE Developed

Invesco MSCI Emerging

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco MSCI Emerging are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Invesco MSCI is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard FTSE Developed

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard FTSE Developed are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Vanguard FTSE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Invesco MSCI and Vanguard FTSE

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

The idea behind Invesco MSCI Emerging and Vanguard FTSE Developed 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.