Correlation Between Invesco Markets and Invesco SP

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

By analyzing existing cross correlation between Invesco Markets III and Invesco SP 500, you can compare the effects of market volatilities on Invesco Markets 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 Invesco Markets with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Markets and Invesco SP.

Diversification Opportunities for Invesco Markets and Invesco SP

-0.31

Correlation Coefficient

Invesco Markets  Invesco SP

Very good diversification

The 3 months correlation between Invesco and Invesco is -0.31. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Markets III and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and Invesco Markets 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 Markets III 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 500 has no effect on the direction of Invesco Markets i.e., Invesco Markets and Invesco SP go up and down completely randomly.

Pair Corralation between Invesco Markets and Invesco SP

Assuming the 90 days trading horizon Invesco Markets III is expected to generate 1.33 times more return on investment than Invesco SP. However, Invesco Markets is 1.33 times more volatile than Invesco SP 500. It trades about -0.04 of its potential returns per unit of risk. Invesco SP 500 is currently generating about -0.32 per unit of risk. If you would invest  2,198  in Invesco Markets III on September 27, 2024 and sell it today you would lose (19.00) from holding Invesco Markets III or give up 0.86% of portfolio value over 90 days.

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

Invesco Markets III  vs.  Invesco SP 500

Invesco Markets III

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Markets III has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Invesco Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco SP 500

Risk-Adjusted Performance

5 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Invesco SP 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 Markets and Invesco SP

The main advantage of trading using opposite Invesco Markets and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Markets 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 Invesco Markets III and Invesco SP 500 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.