Correlation Between Invesco MSCI and Invesco Treasury

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

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

Diversification Opportunities for Invesco MSCI and Invesco Treasury

0.05

Correlation Coefficient

Invesco MSCI  Invesco Treasury

Significant diversification

The 3 months correlation between Invesco and Invesco is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Invesco MSCI Europe and Invesco Treasury Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Treasury Bond and Invesco 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 Invesco MSCI Europe are associated (or correlated) with Invesco Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Treasury Bond has no effect on the direction of Invesco MSCI i.e., Invesco MSCI and Invesco Treasury go up and down completely randomly.

Pair Corralation between Invesco MSCI and Invesco Treasury

Assuming the 90 days trading horizon Invesco MSCI Europe is expected to generate 1.35 times more return on investment than Invesco Treasury. However, Invesco MSCI is 1.35 times more volatile than Invesco Treasury Bond. It trades about -0.04 of its potential returns per unit of risk. Invesco Treasury Bond is currently generating about -0.2 per unit of risk. If you would invest  5,590  in Invesco MSCI Europe on September 27, 2024 and sell it today you would lose (25.00) from holding Invesco MSCI Europe or give up 0.45% of portfolio value over 90 days.

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

Invesco MSCI Europe  vs.  Invesco Treasury Bond

Invesco MSCI Europe

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco Treasury Bond

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Treasury Bond are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Invesco Treasury is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Invesco MSCI and Invesco Treasury

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

The idea behind Invesco MSCI Europe and Invesco Treasury Bond 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.