Correlation Between IPC MEXICO and Invesco CurrencyShares

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

By analyzing existing cross correlation between IPC MEXICO and Invesco CurrencyShares Japanese, you can compare the effects of market volatilities on IPC MEXICO and Invesco CurrencyShares 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 IPC MEXICO with a short position of Invesco CurrencyShares. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPC MEXICO and Invesco CurrencyShares.

Diversification Opportunities for IPC MEXICO and Invesco CurrencyShares

0.6

Correlation Coefficient

IPC MEXICO  Invesco CurrencyShares

Poor diversification

The 3 months correlation between IPC and Invesco is 0.6. Overlapping area represents the amount of risk that can be diversified away by holding IPC MEXICO and Invesco CurrencyShares Japanes in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco CurrencyShares and IPC MEXICO 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 IPC MEXICO are associated (or correlated) with Invesco CurrencyShares. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco CurrencyShares has no effect on the direction of IPC MEXICO i.e., IPC MEXICO and Invesco CurrencyShares go up and down completely randomly.

Pair Corralation between IPC MEXICO and Invesco CurrencyShares

Assuming the 90 days trading horizon IPC MEXICO is expected to under-perform the Invesco CurrencyShares. In addition to that, IPC MEXICO is 1.13 times more volatile than Invesco CurrencyShares Japanese. It trades about -0.31 of its total potential returns per unit of risk. Invesco CurrencyShares Japanese is currently generating about -0.24 per unit of volatility. If you would invest  124,480  in Invesco CurrencyShares Japanese on October 7, 2024 and sell it today you would lose (3,360) from holding Invesco CurrencyShares Japanese or give up 2.7% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	85.71%
Values	Daily Returns

IPC MEXICO  vs.  Invesco CurrencyShares Japanes

Pair Trading with IPC MEXICO and Invesco CurrencyShares

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

The idea behind IPC MEXICO and Invesco CurrencyShares Japanese 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.