Correlation Between IShares MSCI and Invesco KBW

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

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

Diversification Opportunities for IShares MSCI and Invesco KBW

-0.44

Correlation Coefficient

IShares MSCI  Invesco KBW

Very good diversification

The 3 months correlation between IShares and Invesco is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Europe and Invesco KBW Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW Bank and IShares 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 iShares MSCI Europe are associated (or correlated) with Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW Bank has no effect on the direction of IShares MSCI i.e., IShares MSCI and Invesco KBW go up and down completely randomly.

Pair Corralation between IShares MSCI and Invesco KBW

Given the investment horizon of 90 days iShares MSCI Europe is expected to under-perform the Invesco KBW. But the etf apears to be less risky and, when comparing its historical volatility, iShares MSCI Europe is 1.81 times less risky than Invesco KBW. The etf trades about -0.03 of its potential returns per unit of risk. The Invesco KBW Bank is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5,918  in Invesco KBW Bank on August 30, 2024 and sell it today you would earn a total of  1,187  from holding Invesco KBW Bank or generate 20.06% return on investment over 90 days.

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

iShares MSCI Europe  vs.  Invesco KBW Bank

iShares MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares MSCI Europe has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical and fundamental indicators, IShares MSCI is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

Invesco KBW Bank

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco KBW Bank are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Invesco KBW sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IShares MSCI and Invesco KBW

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

The idea behind iShares MSCI Europe and Invesco KBW Bank 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.