Correlation Between Invesco Emerging and Invesco Dividend

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

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

Diversification Opportunities for Invesco Emerging and Invesco Dividend

0.76

Correlation Coefficient

Invesco Emerging  Invesco Dividend

Poor diversification

The 3 months correlation between Invesco and Invesco is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Emerging Markets and Invesco Dividend Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dividend Income and Invesco Emerging 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 Emerging Markets are associated (or correlated) with Invesco Dividend. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Dividend Income has no effect on the direction of Invesco Emerging i.e., Invesco Emerging and Invesco Dividend go up and down completely randomly.

Pair Corralation between Invesco Emerging and Invesco Dividend

Assuming the 90 days horizon Invesco Emerging is expected to generate 10.96 times less return on investment than Invesco Dividend. But when comparing it to its historical volatility, Invesco Emerging Markets is 1.67 times less risky than Invesco Dividend. It trades about 0.03 of its potential returns per unit of risk. Invesco Dividend Income is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  2,564  in Invesco Dividend Income on October 22, 2024 and sell it today you would earn a total of  59.00  from holding Invesco Dividend Income or generate 2.3% return on investment over 90 days.

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

Invesco Emerging Markets  vs.  Invesco Dividend Income

Invesco Emerging Markets

Risk-Adjusted Performance

0 of 100

Very Weak

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

Invesco Dividend Income

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Dividend Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Invesco Dividend 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 Emerging and Invesco Dividend

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

The idea behind Invesco Emerging Markets and Invesco Dividend Income 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.