Correlation Between Invesco FTSE and IShares Core

Can any of the company-specific risk be diversified away by investing in both Invesco FTSE and IShares Core 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 IShares Core 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 iShares Core MSCI, you can compare the effects of market volatilities on Invesco FTSE and IShares Core 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 IShares Core. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco FTSE and IShares Core.

Diversification Opportunities for Invesco FTSE and IShares Core

0.28

Correlation Coefficient

Invesco FTSE  IShares Core

Modest diversification

The 3 months correlation between Invesco and IShares is 0.28. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and iShares Core MSCI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Core MSCI 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 IShares Core. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Core MSCI has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and IShares Core go up and down completely randomly.

Pair Corralation between Invesco FTSE and IShares Core

Assuming the 90 days trading horizon Invesco FTSE RAFI is expected to generate 2.18 times more return on investment than IShares Core. However, Invesco FTSE is 2.18 times more volatile than iShares Core MSCI. It trades about 0.04 of its potential returns per unit of risk. iShares Core MSCI is currently generating about 0.03 per unit of risk. If you would invest  2,245  in Invesco FTSE RAFI on September 29, 2024 and sell it today you would earn a total of  573.00  from holding Invesco FTSE RAFI or generate 25.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	70.56%
Values	Daily Returns

Invesco FTSE RAFI  vs.  iShares Core MSCI

Invesco FTSE RAFI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco FTSE RAFI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Invesco FTSE is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

iShares Core MSCI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Core MSCI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Invesco FTSE and IShares Core

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

The idea behind Invesco FTSE RAFI and iShares Core MSCI 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 Financial Widgets module to easily integrated Macroaxis content with over 30 different plug-and-play financial widgets.