Correlation Between Invesco India and WisdomTree India

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

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

Diversification Opportunities for Invesco India and WisdomTree India

1.0

Correlation Coefficient

Invesco India  WisdomTree India

No risk reduction

The 3 months correlation between Invesco and WisdomTree is 1.0. Overlapping area represents the amount of risk that can be diversified away by holding Invesco India ETF and WisdomTree India Earnings in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree India Earnings and Invesco India 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 India ETF are associated (or correlated) with WisdomTree India. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree India Earnings has no effect on the direction of Invesco India i.e., Invesco India and WisdomTree India go up and down completely randomly.

Pair Corralation between Invesco India and WisdomTree India

Considering the 90-day investment horizon Invesco India ETF is expected to generate 0.97 times more return on investment than WisdomTree India. However, Invesco India ETF is 1.03 times less risky than WisdomTree India. It trades about -0.05 of its potential returns per unit of risk. WisdomTree India Earnings is currently generating about -0.05 per unit of risk. If you would invest  2,576  in Invesco India ETF on December 28, 2024 and sell it today you would lose (83.00) from holding Invesco India ETF or give up 3.22% of portfolio value over 90 days.

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

Invesco India ETF  vs.  WisdomTree India Earnings

Invesco India ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco India ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Invesco India is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

WisdomTree India Earnings

Risk-Adjusted Performance

Very Weak

Over the last 90 days WisdomTree India Earnings has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, WisdomTree India is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Invesco India and WisdomTree India

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

The idea behind Invesco India ETF and WisdomTree India Earnings 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.