Correlation Between Xtrackers Nikkei and Invesco Markets

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

By analyzing existing cross correlation between Xtrackers Nikkei 225 and Invesco Markets plc, you can compare the effects of market volatilities on Xtrackers Nikkei and Invesco Markets 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 Xtrackers Nikkei with a short position of Invesco Markets. Check out your portfolio center. Please also check ongoing floating volatility patterns of Xtrackers Nikkei and Invesco Markets.

Diversification Opportunities for Xtrackers Nikkei and Invesco Markets

0.71

Correlation Coefficient

Xtrackers Nikkei  Invesco Markets

Poor diversification

The 3 months correlation between Xtrackers and Invesco is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers Nikkei 225 and Invesco Markets plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Markets plc and Xtrackers Nikkei 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 Xtrackers Nikkei 225 are associated (or correlated) with Invesco Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Markets plc has no effect on the direction of Xtrackers Nikkei i.e., Xtrackers Nikkei and Invesco Markets go up and down completely randomly.

Pair Corralation between Xtrackers Nikkei and Invesco Markets

Assuming the 90 days trading horizon Xtrackers Nikkei is expected to generate 1.18 times less return on investment than Invesco Markets. In addition to that, Xtrackers Nikkei is 1.08 times more volatile than Invesco Markets plc. It trades about 0.05 of its total potential returns per unit of risk. Invesco Markets plc is currently generating about 0.06 per unit of volatility. If you would invest  32,080  in Invesco Markets plc on September 28, 2024 and sell it today you would earn a total of  9,195  from holding Invesco Markets plc or generate 28.66% return on investment over 90 days.

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

Xtrackers Nikkei 225  vs.  Invesco Markets plc

Xtrackers Nikkei 225

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers Nikkei 225 are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable forward-looking indicators, Xtrackers Nikkei is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco Markets plc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Markets plc has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Invesco Markets is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Xtrackers Nikkei and Invesco Markets

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

The idea behind Xtrackers Nikkei 225 and Invesco Markets plc 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.