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

0.98

Correlation Coefficient

Invesco FTSE  FlexShares International

Almost no diversification

The 3 months correlation between Invesco and FlexShares is 0.98. 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 0.99 times more return on investment than FlexShares International. However, Invesco FTSE RAFI is 1.01 times less risky than FlexShares International. It trades about 0.2 of its potential returns per unit of risk. FlexShares International Quality is currently generating about 0.12 per unit of risk. If you would invest  4,741  in Invesco FTSE RAFI on December 30, 2024 and sell it today you would earn a total of  508.00  from holding Invesco FTSE RAFI or generate 10.72% return on investment over 90 days.

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

Invesco FTSE RAFI  vs.  FlexShares International Quali

Invesco FTSE RAFI

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Invesco FTSE may actually be approaching a critical reversion point that can send shares even higher in April 2025.

FlexShares International

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in FlexShares International Quality are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, FlexShares International may actually be approaching a critical reversion point that can send shares even higher in April 2025.

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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.