Correlation Between Xtrackers MSCI and Invesco Health

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

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

Diversification Opportunities for Xtrackers MSCI and Invesco Health

-0.63

Correlation Coefficient

Xtrackers MSCI  Invesco Health

Excellent diversification

The 3 months correlation between Xtrackers and Invesco is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers MSCI World and Invesco Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Health Care and Xtrackers 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 Xtrackers MSCI World are associated (or correlated) with Invesco Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Health Care has no effect on the direction of Xtrackers MSCI i.e., Xtrackers MSCI and Invesco Health go up and down completely randomly.

Pair Corralation between Xtrackers MSCI and Invesco Health

Assuming the 90 days trading horizon Xtrackers MSCI World is expected to generate 1.67 times more return on investment than Invesco Health. However, Xtrackers MSCI is 1.67 times more volatile than Invesco Health Care. It trades about 0.16 of its potential returns per unit of risk. Invesco Health Care is currently generating about -0.14 per unit of risk. If you would invest  8,489  in Xtrackers MSCI World on September 4, 2024 and sell it today you would earn a total of  1,074  from holding Xtrackers MSCI World or generate 12.65% return on investment over 90 days.

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

Xtrackers MSCI World  vs.  Invesco Health Care

Xtrackers MSCI World

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers MSCI World are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers MSCI may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco Health is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Xtrackers MSCI and Invesco Health

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

The idea behind Xtrackers MSCI World and Invesco Health Care 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.