Correlation Between Invesco China and Franklin FTSE

Can any of the company-specific risk be diversified away by investing in both Invesco China and Franklin 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 Invesco China and Franklin FTSE 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 Franklin FTSE Hong, you can compare the effects of market volatilities on Invesco China and Franklin 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 Invesco China with a short position of Franklin FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco China and Franklin FTSE.

Diversification Opportunities for Invesco China and Franklin FTSE

0.84

Correlation Coefficient

Invesco China  Franklin FTSE

Very poor diversification

The 3 months correlation between Invesco and Franklin is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Invesco China Technology and Franklin FTSE Hong in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Franklin FTSE Hong 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 Franklin FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Franklin FTSE Hong has no effect on the direction of Invesco China i.e., Invesco China and Franklin FTSE go up and down completely randomly.

Pair Corralation between Invesco China and Franklin FTSE

Given the investment horizon of 90 days Invesco China Technology is expected to generate 2.16 times more return on investment than Franklin FTSE. However, Invesco China is 2.16 times more volatile than Franklin FTSE Hong. It trades about -0.03 of its potential returns per unit of risk. Franklin FTSE Hong is currently generating about -0.17 per unit of risk. If you would invest  4,147  in Invesco China Technology on August 30, 2024 and sell it today you would lose (115.00) from holding Invesco China Technology or give up 2.77% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.65%
Values	Daily Returns

Invesco China Technology  vs.  Franklin FTSE Hong

Invesco China Technology

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco China Technology are ranked lower than 9 (%) 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.

Franklin FTSE Hong

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Franklin FTSE Hong are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite quite inconsistent technical indicators, Franklin FTSE may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Invesco China and Franklin FTSE

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

The idea behind Invesco China Technology and Franklin FTSE Hong 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.