Correlation Between KraneShares MSCI and Invesco China

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

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

Diversification Opportunities for KraneShares MSCI and Invesco China

0.91

Correlation Coefficient

KraneShares MSCI  Invesco China

Almost no diversification

The 3 months correlation between KraneShares and Invesco is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding KraneShares MSCI All and Invesco China Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco China Technology and KraneShares 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 KraneShares MSCI All are associated (or correlated) with Invesco China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco China Technology has no effect on the direction of KraneShares MSCI i.e., KraneShares MSCI and Invesco China go up and down completely randomly.

Pair Corralation between KraneShares MSCI and Invesco China

Given the investment horizon of 90 days KraneShares MSCI All is expected to under-perform the Invesco China. But the etf apears to be less risky and, when comparing its historical volatility, KraneShares MSCI All is 1.16 times less risky than Invesco China. The etf trades about -0.02 of its potential returns per unit of risk. The Invesco China Technology is currently generating about 0.0 of returns per unit of risk over similar time horizon. If you would invest  4,420  in Invesco China Technology on September 14, 2024 and sell it today you would lose (343.00) from holding Invesco China Technology or give up 7.76% of portfolio value over 90 days.

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

KraneShares MSCI All  vs.  Invesco China Technology

KraneShares MSCI All

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in KraneShares MSCI All are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, KraneShares MSCI exhibited solid returns over the last few months and may actually be approaching a breakup point.

Invesco China Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco China Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Invesco China reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with KraneShares MSCI and Invesco China

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

The idea behind KraneShares MSCI All and Invesco China Technology 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.