Correlation Between Invesco SP and FlexShares Morningstar

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

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

Diversification Opportunities for Invesco SP and FlexShares Morningstar

0.92

Correlation Coefficient

Invesco SP  FlexShares Morningstar

Almost no diversification

The 3 months correlation between Invesco and FlexShares is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP Emerging and FlexShares Morningstar Develop in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FlexShares Morningstar and Invesco SP 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 Invesco SP Emerging are associated (or correlated) with FlexShares Morningstar. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FlexShares Morningstar has no effect on the direction of Invesco SP i.e., Invesco SP and FlexShares Morningstar go up and down completely randomly.

Pair Corralation between Invesco SP and FlexShares Morningstar

Given the investment horizon of 90 days Invesco SP Emerging is expected to under-perform the FlexShares Morningstar. But the etf apears to be less risky and, when comparing its historical volatility, Invesco SP Emerging is 1.14 times less risky than FlexShares Morningstar. The etf trades about -0.23 of its potential returns per unit of risk. The FlexShares Morningstar Developed is currently generating about -0.19 of returns per unit of risk over similar time horizon. If you would invest  7,500  in FlexShares Morningstar Developed on August 30, 2024 and sell it today you would lose (423.00) from holding FlexShares Morningstar Developed or give up 5.64% of portfolio value over 90 days.

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

Invesco SP Emerging  vs.  FlexShares Morningstar Develop

Invesco SP Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable essential indicators, Invesco SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

FlexShares Morningstar

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Invesco SP and FlexShares Morningstar

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

The idea behind Invesco SP Emerging and FlexShares Morningstar Developed 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.