Correlation Between Invesco FTSE and FlexShares International

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

Diversification Opportunities for Invesco FTSE and FlexShares International

0.84

Correlation Coefficient

Invesco FTSE  FlexShares International

Very poor diversification

The 3 months correlation between Invesco and FlexShares is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and FlexShares International Quali in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares International 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 FlexShares International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares International has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and FlexShares International go up and down completely randomly.

Pair Corralation between Invesco FTSE and FlexShares International

Considering the 90-day investment horizon Invesco FTSE RAFI is expected to generate 0.93 times more return on investment than FlexShares International. However, Invesco FTSE RAFI is 1.08 times less risky than FlexShares International. It trades about -0.1 of its potential returns per unit of risk. FlexShares International Quality is currently generating about -0.13 per unit of risk. If you would invest  5,078  in Invesco FTSE RAFI on October 8, 2024 and sell it today you would lose (229.50) from holding Invesco FTSE RAFI or give up 4.52% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.41%
Values	Daily Returns

Invesco FTSE RAFI  vs.  FlexShares International Quali

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. Despite nearly stable basic indicators, Invesco FTSE is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

FlexShares International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares International Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, FlexShares International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Invesco FTSE and FlexShares International

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

The idea behind Invesco FTSE RAFI and FlexShares International Quality 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.