Correlation Between Lyxor Japan and Invesco MSCI

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

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

Diversification Opportunities for Lyxor Japan and Invesco MSCI

0.68

Correlation Coefficient

Lyxor Japan  Invesco MSCI

Poor diversification

The 3 months correlation between Lyxor and Invesco is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor Japan UCITS and Invesco MSCI USA in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco MSCI USA and Lyxor Japan 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 Lyxor Japan UCITS are associated (or correlated) with Invesco MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco MSCI USA has no effect on the direction of Lyxor Japan i.e., Lyxor Japan and Invesco MSCI go up and down completely randomly.

Pair Corralation between Lyxor Japan and Invesco MSCI

Assuming the 90 days trading horizon Lyxor Japan is expected to generate 2.9 times less return on investment than Invesco MSCI. In addition to that, Lyxor Japan is 1.29 times more volatile than Invesco MSCI USA. It trades about 0.1 of its total potential returns per unit of risk. Invesco MSCI USA is currently generating about 0.37 per unit of volatility. If you would invest  8,672  in Invesco MSCI USA on September 5, 2024 and sell it today you would earn a total of  502.00  from holding Invesco MSCI USA or generate 5.79% return on investment over 90 days.

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

Lyxor Japan UCITS  vs.  Invesco MSCI USA

Lyxor Japan UCITS

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor Japan UCITS are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Lyxor Japan is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco MSCI USA

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco MSCI USA are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal basic indicators, Invesco MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Lyxor Japan and Invesco MSCI

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

The idea behind Lyxor Japan UCITS and Invesco MSCI USA 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 Odds Of Bankruptcy module to get analysis of equity chance of financial distress in the next 2 years.