Correlation Between IShares MSCI and Invesco FTSE

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

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

Diversification Opportunities for IShares MSCI and Invesco FTSE

0.98

Correlation Coefficient

IShares MSCI  Invesco FTSE

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Canada and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI and IShares MSCI 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 iShares MSCI Canada are associated (or correlated) with Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of IShares MSCI i.e., IShares MSCI and Invesco FTSE go up and down completely randomly.

Pair Corralation between IShares MSCI and Invesco FTSE

Assuming the 90 days trading horizon IShares MSCI is expected to generate 1.73 times less return on investment than Invesco FTSE. But when comparing it to its historical volatility, iShares MSCI Canada is 1.44 times less risky than Invesco FTSE. It trades about 0.23 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about 0.28 of returns per unit of risk over similar time horizon. If you would invest  3,969  in Invesco FTSE RAFI on September 12, 2024 and sell it today you would earn a total of  354.00  from holding Invesco FTSE RAFI or generate 8.92% return on investment over 90 days.

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

iShares MSCI Canada  vs.  Invesco FTSE RAFI

iShares MSCI Canada

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in iShares MSCI Canada are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, IShares MSCI is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Invesco FTSE RAFI

Risk-Adjusted Performance

22 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating fundamental indicators, Invesco FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with IShares MSCI and Invesco FTSE

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

The idea behind iShares MSCI Canada and Invesco FTSE RAFI 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 Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.