Correlation Between American High-income and Invesco Growth

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

By analyzing existing cross correlation between American High Income Municipal and Invesco Growth Allocation, you can compare the effects of market volatilities on American High-income and Invesco Growth 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 American High-income with a short position of Invesco Growth. Check out your portfolio center. Please also check ongoing floating volatility patterns of American High-income and Invesco Growth.

Diversification Opportunities for American High-income and Invesco Growth

0.7

Correlation Coefficient

American High-income  Invesco Growth

Poor diversification

The 3 months correlation between American and Invesco is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding American High Income Municipal and Invesco Growth Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Growth Allocation and American High-income 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 American High Income Municipal are associated (or correlated) with Invesco Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Growth Allocation has no effect on the direction of American High-income i.e., American High-income and Invesco Growth go up and down completely randomly.

Pair Corralation between American High-income and Invesco Growth

Assuming the 90 days horizon American High-income is expected to generate 1.66 times less return on investment than Invesco Growth. But when comparing it to its historical volatility, American High Income Municipal is 2.37 times less risky than Invesco Growth. It trades about 0.07 of its potential returns per unit of risk. Invesco Growth Allocation is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  1,309  in Invesco Growth Allocation on October 11, 2024 and sell it today you would earn a total of  212.00  from holding Invesco Growth Allocation or generate 16.2% return on investment over 90 days.

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

American High Income Municipal  vs.  Invesco Growth Allocation

American High Income

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco Growth Allocation

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with American High-income and Invesco Growth

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

The idea behind American High Income Municipal and Invesco Growth Allocation 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.