Correlation Between Invesco Discovery and Invesco Nasdaq

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

By analyzing existing cross correlation between Invesco Discovery and Invesco Nasdaq 100, you can compare the effects of market volatilities on Invesco Discovery and Invesco Nasdaq 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 Discovery with a short position of Invesco Nasdaq. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Discovery and Invesco Nasdaq.

Diversification Opportunities for Invesco Discovery and Invesco Nasdaq

0.9

Correlation Coefficient

Invesco Discovery  Invesco Nasdaq

Almost no diversification

The 3 months correlation between Invesco and Invesco is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Discovery and Invesco Nasdaq 100 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Nasdaq 100 and Invesco Discovery 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 Discovery are associated (or correlated) with Invesco Nasdaq. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Nasdaq 100 has no effect on the direction of Invesco Discovery i.e., Invesco Discovery and Invesco Nasdaq go up and down completely randomly.

Pair Corralation between Invesco Discovery and Invesco Nasdaq

Assuming the 90 days horizon Invesco Discovery is expected to generate 1.02 times less return on investment than Invesco Nasdaq. In addition to that, Invesco Discovery is 1.28 times more volatile than Invesco Nasdaq 100. It trades about 0.14 of its total potential returns per unit of risk. Invesco Nasdaq 100 is currently generating about 0.18 per unit of volatility. If you would invest  4,006  in Invesco Nasdaq 100 on September 15, 2024 and sell it today you would earn a total of  476.00  from holding Invesco Nasdaq 100 or generate 11.88% return on investment over 90 days.

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

Invesco Discovery  vs.  Invesco Nasdaq 100

Invesco Discovery

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Discovery are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak technical and fundamental indicators, Invesco Discovery may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco Nasdaq 100

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Nasdaq 100 are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Invesco Nasdaq may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco Discovery and Invesco Nasdaq

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

The idea behind Invesco Discovery and Invesco Nasdaq 100 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.