Correlation Between Invesco FTSE and Lyxor Japan

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

Diversification Opportunities for Invesco FTSE and Lyxor Japan

0.08

Correlation Coefficient

Invesco FTSE  Lyxor Japan

Significant diversification

The 3 months correlation between Invesco and Lyxor is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and Lyxor Japan UCITS in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Lyxor Japan UCITS 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 Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Lyxor Japan UCITS has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and Lyxor Japan go up and down completely randomly.

Pair Corralation between Invesco FTSE and Lyxor Japan

Assuming the 90 days trading horizon Invesco FTSE is expected to generate 1.09 times less return on investment than Lyxor Japan. In addition to that, Invesco FTSE is 1.62 times more volatile than Lyxor Japan UCITS. It trades about 0.04 of its total potential returns per unit of risk. Lyxor Japan UCITS is currently generating about 0.07 per unit of volatility. If you would invest  1,787,080  in Lyxor Japan UCITS on September 29, 2024 and sell it today you would earn a total of  826,420  from holding Lyxor Japan UCITS or generate 46.24% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	79.01%
Values	Daily Returns

Invesco FTSE RAFI  vs.  Lyxor Japan UCITS

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.

Lyxor Japan UCITS

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor Japan UCITS are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Lyxor Japan is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Invesco FTSE and Lyxor Japan

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

The idea behind Invesco FTSE RAFI and Lyxor Japan UCITS 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.