Correlation Between Dimensional International and Invesco SP

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

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

Diversification Opportunities for Dimensional International and Invesco SP

-0.36

Correlation Coefficient

Dimensional International  Invesco SP

Very good diversification

The 3 months correlation between Dimensional and Invesco is -0.36. Overlapping area represents the amount of risk that can be diversified away by holding Dimensional International High and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap and Dimensional International 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 Dimensional International High are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP MidCap has no effect on the direction of Dimensional International i.e., Dimensional International and Invesco SP go up and down completely randomly.

Pair Corralation between Dimensional International and Invesco SP

Given the investment horizon of 90 days Dimensional International High is expected to under-perform the Invesco SP. But the etf apears to be less risky and, when comparing its historical volatility, Dimensional International High is 1.3 times less risky than Invesco SP. The etf trades about -0.08 of its potential returns per unit of risk. The Invesco SP MidCap is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  9,998  in Invesco SP MidCap on September 16, 2024 and sell it today you would earn a total of  595.00  from holding Invesco SP MidCap or generate 5.95% return on investment over 90 days.

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

Dimensional International High  vs.  Invesco SP MidCap

Dimensional International

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dimensional International High has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable technical indicators, Dimensional International is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Invesco SP MidCap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, Invesco SP is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Dimensional International and Invesco SP

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

The idea behind Dimensional International High and Invesco SP MidCap 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 Volatility Analysis module to get historical volatility and risk analysis based on latest market data.