Correlation Between IShares MSCI and Invesco SPTSX

Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Invesco SPTSX 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 SPTSX 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 SPTSX Composite, you can compare the effects of market volatilities on IShares MSCI and Invesco SPTSX 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 SPTSX. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Invesco SPTSX.

Diversification Opportunities for IShares MSCI and Invesco SPTSX

0.75

Correlation Coefficient

IShares MSCI  Invesco SPTSX

Poor diversification

The 3 months correlation between IShares and Invesco is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI Canada and Invesco SPTSX Composite in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SPTSX Composite 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 SPTSX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SPTSX Composite has no effect on the direction of IShares MSCI i.e., IShares MSCI and Invesco SPTSX go up and down completely randomly.

Pair Corralation between IShares MSCI and Invesco SPTSX

Assuming the 90 days trading horizon iShares MSCI Canada is expected to under-perform the Invesco SPTSX. In addition to that, IShares MSCI is 1.45 times more volatile than Invesco SPTSX Composite. It trades about -0.07 of its total potential returns per unit of risk. Invesco SPTSX Composite is currently generating about 0.0 per unit of volatility. If you would invest  3,367  in Invesco SPTSX Composite on December 2, 2024 and sell it today you would lose (6.00) from holding Invesco SPTSX Composite or give up 0.18% of portfolio value over 90 days.

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

iShares MSCI Canada  vs.  Invesco SPTSX Composite

iShares MSCI Canada

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares MSCI Canada has generated negative risk-adjusted returns adding no value to investors with long positions. 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 SPTSX Composite

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco SPTSX Composite has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Invesco SPTSX is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with IShares MSCI and Invesco SPTSX

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

The idea behind iShares MSCI Canada and Invesco SPTSX Composite 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.