Correlation Between Invesco JPX and Invesco MSCI

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

By analyzing existing cross correlation between Invesco JPX Nikkei 400 and Invesco MSCI Japan, you can compare the effects of market volatilities on Invesco JPX 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 Invesco JPX with a short position of Invesco MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco JPX and Invesco MSCI.

Diversification Opportunities for Invesco JPX and Invesco MSCI

0.94

Correlation Coefficient

Invesco JPX  Invesco MSCI

Almost no diversification

The 3 months correlation between Invesco and Invesco is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Invesco JPX Nikkei 400 and Invesco MSCI Japan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco MSCI Japan and Invesco JPX 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 JPX Nikkei 400 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 Japan has no effect on the direction of Invesco JPX i.e., Invesco JPX and Invesco MSCI go up and down completely randomly.

Pair Corralation between Invesco JPX and Invesco MSCI

Assuming the 90 days trading horizon Invesco JPX is expected to generate 1.38 times less return on investment than Invesco MSCI. In addition to that, Invesco JPX is 1.04 times more volatile than Invesco MSCI Japan. It trades about 0.1 of its total potential returns per unit of risk. Invesco MSCI Japan is currently generating about 0.15 per unit of volatility. If you would invest  7,522  in Invesco MSCI Japan on September 18, 2024 and sell it today you would earn a total of  216.00  from holding Invesco MSCI Japan or generate 2.87% return on investment over 90 days.

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

Invesco JPX Nikkei 400  vs.  Invesco MSCI Japan

Invesco JPX Nikkei

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco JPX Nikkei 400 are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco JPX is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco MSCI Japan

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco MSCI Japan are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Invesco MSCI is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Invesco JPX and Invesco MSCI

The main advantage of trading using opposite Invesco JPX and Invesco MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco JPX 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 Invesco JPX Nikkei 400 and Invesco MSCI Japan 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 Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.