Correlation Between IShares MSCI and Invesco DWA
Can any of the company-specific risk be diversified away by investing in both IShares MSCI and Invesco DWA 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 IShares MSCI and Invesco DWA into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares MSCI EAFE and Invesco DWA SmallCap, you can compare the effects of market volatilities on IShares MSCI and Invesco DWA 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 IShares MSCI with a short position of Invesco DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares MSCI and Invesco DWA.
Diversification Opportunities for IShares MSCI and Invesco DWA
-0.55 | Correlation Coefficient |
Excellent diversification
The 3 months correlation between IShares and Invesco is -0.55. Overlapping area represents the amount of risk that can be diversified away by holding iShares MSCI EAFE and Invesco DWA SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA SmallCap and IShares 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 iShares MSCI EAFE are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA SmallCap has no effect on the direction of IShares MSCI i.e., IShares MSCI and Invesco DWA go up and down completely randomly.
Pair Corralation between IShares MSCI and Invesco DWA
Considering the 90-day investment horizon IShares MSCI is expected to generate 12.51 times less return on investment than Invesco DWA. But when comparing it to its historical volatility, iShares MSCI EAFE is 2.16 times less risky than Invesco DWA. It trades about 0.05 of its potential returns per unit of risk. Invesco DWA SmallCap is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest 9,189 in Invesco DWA SmallCap on September 2, 2024 and sell it today you would earn a total of 1,087 from holding Invesco DWA SmallCap or generate 11.83% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Against |
| Strength | Very Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares MSCI EAFE vs. Invesco DWA SmallCap
Performance |
| Timeline |
| iShares MSCI EAFE |
| Invesco DWA SmallCap |
IShares MSCI and Invesco DWA Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares MSCI and Invesco DWA
The main advantage of trading using opposite IShares MSCI and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares MSCI position performs unexpectedly, Invesco DWA 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 DWA will offset losses from the drop in Invesco DWA's long position.| IShares MSCI vs. Dimensional ETF Trust | IShares MSCI vs. Vanguard Small Cap Index | IShares MSCI vs. First Trust Multi Manager | IShares MSCI vs. Vanguard SP Small Cap |
| Invesco DWA vs. Invesco DWA Momentum | Invesco DWA vs. Invesco DWA Developed | Invesco DWA vs. Invesco DWA Emerging | Invesco DWA vs. First Trust Small |
Check out your portfolio center.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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.
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