Correlation Between FlexShares International and Invesco SP

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

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

Diversification Opportunities for FlexShares International and Invesco SP

0.89

Correlation Coefficient

FlexShares International  Invesco SP

Very poor diversification

The 3 months correlation between FlexShares and Invesco is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding FlexShares International Quali and Invesco SP Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP Emerging and FlexShares International 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 FlexShares International Quality are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP Emerging has no effect on the direction of FlexShares International i.e., FlexShares International and Invesco SP go up and down completely randomly.

Pair Corralation between FlexShares International and Invesco SP

Given the investment horizon of 90 days FlexShares International Quality is expected to generate 1.45 times more return on investment than Invesco SP. However, FlexShares International is 1.45 times more volatile than Invesco SP Emerging. It trades about -0.03 of its potential returns per unit of risk. Invesco SP Emerging is currently generating about -0.04 per unit of risk. If you would invest  2,521  in FlexShares International Quality on September 3, 2024 and sell it today you would lose (47.00) from holding FlexShares International Quality or give up 1.86% of portfolio value over 90 days.

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

FlexShares International Quali  vs.  Invesco SP Emerging

FlexShares International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days FlexShares International Quality has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable fundamental indicators, FlexShares International is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

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 current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with FlexShares International and Invesco SP

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

The idea behind FlexShares International Quality and Invesco SP Emerging 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.