Correlation Between Invesco FTSE and Lyxor UCITS

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

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

Diversification Opportunities for Invesco FTSE and Lyxor UCITS

0.49

Correlation Coefficient

Invesco FTSE  Lyxor UCITS

Very weak diversification

The 3 months correlation between Invesco and Lyxor is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and Lyxor UCITS Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor UCITS Japan and Invesco FTSE 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 FTSE RAFI are associated (or correlated) with Lyxor UCITS. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor UCITS Japan has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and Lyxor UCITS go up and down completely randomly.

Pair Corralation between Invesco FTSE and Lyxor UCITS

Assuming the 90 days trading horizon Invesco FTSE RAFI is expected to under-perform the Lyxor UCITS. But the etf apears to be less risky and, when comparing its historical volatility, Invesco FTSE RAFI is 1.38 times less risky than Lyxor UCITS. The etf trades about -0.41 of its potential returns per unit of risk. The Lyxor UCITS Japan is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  21,338  in Lyxor UCITS Japan on September 27, 2024 and sell it today you would earn a total of  472.00  from holding Lyxor UCITS Japan or generate 2.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.45%
Values	Daily Returns

Invesco FTSE RAFI  vs.  Lyxor UCITS Japan

Invesco FTSE RAFI

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Invesco FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Lyxor UCITS Japan

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor UCITS Japan are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Lyxor UCITS is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco FTSE and Lyxor UCITS

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

The idea behind Invesco FTSE RAFI and Lyxor UCITS Japan 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.