Correlation Between FlexShares IBoxx and Invesco PureBeta

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

By analyzing existing cross correlation between FlexShares iBoxx 5 Year and Invesco PureBeta 0 5, you can compare the effects of market volatilities on FlexShares IBoxx and Invesco PureBeta 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 FlexShares IBoxx with a short position of Invesco PureBeta. Check out your portfolio center. Please also check ongoing floating volatility patterns of FlexShares IBoxx and Invesco PureBeta.

Diversification Opportunities for FlexShares IBoxx and Invesco PureBeta

0.63

Correlation Coefficient

FlexShares IBoxx  Invesco PureBeta

Poor diversification

The 3 months correlation between FlexShares and Invesco is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares iBoxx 5 Year and Invesco PureBeta 0 5 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco PureBeta 0 and FlexShares IBoxx 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 FlexShares iBoxx 5 Year are associated (or correlated) with Invesco PureBeta. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco PureBeta 0 has no effect on the direction of FlexShares IBoxx i.e., FlexShares IBoxx and Invesco PureBeta go up and down completely randomly.

Pair Corralation between FlexShares IBoxx and Invesco PureBeta

Given the investment horizon of 90 days FlexShares iBoxx 5 Year is expected to under-perform the Invesco PureBeta. In addition to that, FlexShares IBoxx is 1.95 times more volatile than Invesco PureBeta 0 5. It trades about -0.21 of its total potential returns per unit of risk. Invesco PureBeta 0 5 is currently generating about -0.05 per unit of volatility. If you would invest  2,555  in Invesco PureBeta 0 5 on September 25, 2024 and sell it today you would lose (10.00) from holding Invesco PureBeta 0 5 or give up 0.39% of portfolio value over 90 days.

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

FlexShares iBoxx 5 Year  vs.  Invesco PureBeta 0 5

FlexShares iBoxx 5

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares iBoxx 5 Year has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, FlexShares IBoxx is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco PureBeta 0

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco PureBeta 0 5 has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Invesco PureBeta is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with FlexShares IBoxx and Invesco PureBeta

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

The idea behind FlexShares iBoxx 5 Year and Invesco PureBeta 0 5 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.