Correlation Between Xtrackers and Invesco Markets

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

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

Diversification Opportunities for Xtrackers and Invesco Markets

0.09

Correlation Coefficient

Xtrackers  Invesco Markets

Significant diversification

The 3 months correlation between Xtrackers and Invesco is 0.09. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers II and Invesco Markets plc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Markets plc and Xtrackers 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 II are associated (or correlated) with Invesco Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Markets plc has no effect on the direction of Xtrackers i.e., Xtrackers and Invesco Markets go up and down completely randomly.

Pair Corralation between Xtrackers and Invesco Markets

Assuming the 90 days trading horizon Xtrackers II is expected to under-perform the Invesco Markets. But the etf apears to be less risky and, when comparing its historical volatility, Xtrackers II is 1.32 times less risky than Invesco Markets. The etf trades about -0.04 of its potential returns per unit of risk. The Invesco Markets plc is currently generating about 0.07 of returns per unit of risk over similar time horizon. If you would invest  35,950  in Invesco Markets plc on September 20, 2024 and sell it today you would earn a total of  6,400  from holding Invesco Markets plc or generate 17.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	99.6%
Values	Daily Returns

Xtrackers II   vs.  Invesco Markets plc

Xtrackers II

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Xtrackers II has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Xtrackers is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco Markets plc

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Markets plc are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco Markets is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Xtrackers and Invesco Markets

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

The idea behind Xtrackers II and Invesco Markets plc 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.