Correlation Between Invesco China and Roundhill China

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

By analyzing existing cross correlation between Invesco China Technology and Roundhill China Dragons, you can compare the effects of market volatilities on Invesco China and Roundhill China 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 China with a short position of Roundhill China. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco China and Roundhill China.

Diversification Opportunities for Invesco China and Roundhill China

0.69

Correlation Coefficient

Invesco China  Roundhill China

Poor diversification

The 3 months correlation between Invesco and Roundhill is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Invesco China Technology and Roundhill China Dragons in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Roundhill China Dragons and Invesco China 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 China Technology are associated (or correlated) with Roundhill China. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Roundhill China Dragons has no effect on the direction of Invesco China i.e., Invesco China and Roundhill China go up and down completely randomly.

Pair Corralation between Invesco China and Roundhill China

Given the investment horizon of 90 days Invesco China Technology is expected to generate 1.38 times more return on investment than Roundhill China. However, Invesco China is 1.38 times more volatile than Roundhill China Dragons. It trades about 0.13 of its potential returns per unit of risk. Roundhill China Dragons is currently generating about -0.15 per unit of risk. If you would invest  3,154  in Invesco China Technology on September 2, 2024 and sell it today you would earn a total of  903.00  from holding Invesco China Technology or generate 28.63% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	65.63%
Values	Daily Returns

Invesco China Technology  vs.  Roundhill China Dragons

Invesco China Technology

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco China Technology are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Invesco China reported solid returns over the last few months and may actually be approaching a breakup point.

Roundhill China Dragons

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Roundhill China Dragons has generated negative risk-adjusted returns adding no value to investors with long positions. Despite uncertain performance in the last few months, the Etf's basic indicators remain nearly stable which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long-run up-swing for the Exchange Traded Fund stockholders.

Pair Trading with Invesco China and Roundhill China

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

The idea behind Invesco China Technology and Roundhill China Dragons 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.

Check out your portfolio center.

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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.