Correlation Between Invesco European and Vanguard Pacific

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

By analyzing existing cross correlation between Invesco European Growth and Vanguard Pacific Stock, you can compare the effects of market volatilities on Invesco European and Vanguard Pacific 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 European with a short position of Vanguard Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco European and Vanguard Pacific.

Diversification Opportunities for Invesco European and Vanguard Pacific

0.87

Correlation Coefficient

Invesco European  Vanguard Pacific

Very poor diversification

The 3 months correlation between Invesco and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Invesco European Growth and Vanguard Pacific Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Pacific Stock and Invesco European 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 European Growth are associated (or correlated) with Vanguard Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Pacific Stock has no effect on the direction of Invesco European i.e., Invesco European and Vanguard Pacific go up and down completely randomly.

Pair Corralation between Invesco European and Vanguard Pacific

Assuming the 90 days horizon Invesco European Growth is expected to under-perform the Vanguard Pacific. In addition to that, Invesco European is 1.43 times more volatile than Vanguard Pacific Stock. It trades about -0.02 of its total potential returns per unit of risk. Vanguard Pacific Stock is currently generating about 0.02 per unit of volatility. If you would invest  9,154  in Vanguard Pacific Stock on November 29, 2024 and sell it today you would earn a total of  49.00  from holding Vanguard Pacific Stock or generate 0.54% return on investment over 90 days.

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

Invesco European Growth  vs.  Vanguard Pacific Stock

Invesco European Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco European Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Invesco European is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Pacific Stock

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Pacific Stock are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Vanguard Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco European and Vanguard Pacific

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

The idea behind Invesco European Growth and Vanguard Pacific Stock 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.