Correlation Between Invesco FTSE and WisdomTree Emerging

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

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

Diversification Opportunities for Invesco FTSE and WisdomTree Emerging

0.88

Correlation Coefficient

Invesco FTSE  WisdomTree Emerging

Very poor diversification

The 3 months correlation between Invesco and WisdomTree is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and WisdomTree Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Emerging and Invesco FTSE 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 FTSE RAFI are associated (or correlated) with WisdomTree Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Emerging has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and WisdomTree Emerging go up and down completely randomly.

Pair Corralation between Invesco FTSE and WisdomTree Emerging

Considering the 90-day investment horizon Invesco FTSE RAFI is expected to generate 1.16 times more return on investment than WisdomTree Emerging. However, Invesco FTSE is 1.16 times more volatile than WisdomTree Emerging Markets. It trades about 0.45 of its potential returns per unit of risk. WisdomTree Emerging Markets is currently generating about 0.34 per unit of risk. If you would invest  1,921  in Invesco FTSE RAFI on February 13, 2024 and sell it today you would earn a total of  167.00  from holding Invesco FTSE RAFI or generate 8.69% return on investment over 90 days.

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

Invesco FTSE RAFI  vs.  WisdomTree Emerging Markets

Invesco FTSE RAFI

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile basic indicators, Invesco FTSE may actually be approaching a critical reversion point that can send shares even higher in June 2024.

WisdomTree Emerging

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Emerging Markets are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile technical and fundamental indicators, WisdomTree Emerging may actually be approaching a critical reversion point that can send shares even higher in June 2024.

Pair Trading with Invesco FTSE and WisdomTree Emerging

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

The idea behind Invesco FTSE RAFI and WisdomTree Emerging Markets 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.