Correlation Between SPDR FTSE and Invesco Emerging

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

By analyzing existing cross correlation between SPDR FTSE International and Invesco Emerging Markets, you can compare the effects of market volatilities on SPDR FTSE and Invesco Emerging 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 SPDR FTSE with a short position of Invesco Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR FTSE and Invesco Emerging.

Diversification Opportunities for SPDR FTSE and Invesco Emerging

0.84

Correlation Coefficient

SPDR FTSE  Invesco Emerging

Very poor diversification

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

Pair Corralation between SPDR FTSE and Invesco Emerging

Considering the 90-day investment horizon SPDR FTSE International is expected to under-perform the Invesco Emerging. But the etf apears to be less risky and, when comparing its historical volatility, SPDR FTSE International is 1.04 times less risky than Invesco Emerging. The etf trades about -0.09 of its potential returns per unit of risk. The Invesco Emerging Markets is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  2,068  in Invesco Emerging Markets on September 4, 2024 and sell it today you would earn a total of  9.00  from holding Invesco Emerging Markets or generate 0.44% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	98.44%
Values	Daily Returns

SPDR FTSE International  vs.  Invesco Emerging Markets

SPDR FTSE International

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco Emerging Markets

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Emerging Markets are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Invesco Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with SPDR FTSE and Invesco Emerging

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

The idea behind SPDR FTSE International and Invesco Emerging Markets 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.