Correlation Between ALM ES and Invesco Euro

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

By analyzing existing cross correlation between ALM ES Actions and Invesco Euro Corporate, you can compare the effects of market volatilities on ALM ES and Invesco Euro 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 ALM ES with a short position of Invesco Euro. Check out your portfolio center. Please also check ongoing floating volatility patterns of ALM ES and Invesco Euro.

Diversification Opportunities for ALM ES and Invesco Euro

0.59

Correlation Coefficient

ALM ES  Invesco Euro

Very weak diversification

The 3 months correlation between ALM and Invesco is 0.59. Overlapping area represents the amount of risk that can be diversified away by holding ALM ES Actions and Invesco Euro Corporate in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Euro Corporate and ALM ES 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 ALM ES Actions are associated (or correlated) with Invesco Euro. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Euro Corporate has no effect on the direction of ALM ES i.e., ALM ES and Invesco Euro go up and down completely randomly.

Pair Corralation between ALM ES and Invesco Euro

Assuming the 90 days trading horizon ALM ES Actions is expected to under-perform the Invesco Euro. In addition to that, ALM ES is 3.32 times more volatile than Invesco Euro Corporate. It trades about -0.12 of its total potential returns per unit of risk. Invesco Euro Corporate is currently generating about -0.04 per unit of volatility. If you would invest  1,881  in Invesco Euro Corporate on December 23, 2024 and sell it today you would lose (11.00) from holding Invesco Euro Corporate or give up 0.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	96.72%
Values	Daily Returns

ALM ES Actions  vs.  Invesco Euro Corporate

ALM ES Actions

Risk-Adjusted Performance

Very Weak

Over the last 90 days ALM ES Actions has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the fund investors.

Invesco Euro Corporate

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Euro Corporate has generated negative risk-adjusted returns adding no value to fund investors. In spite of rather sound technical and fundamental indicators, Invesco Euro is not utilizing all of its potentials. The new stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with ALM ES and Invesco Euro

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

The idea behind ALM ES Actions and Invesco Euro Corporate 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.