Correlation Between ESH Acquisition and Invesco Value

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

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

Diversification Opportunities for ESH Acquisition and Invesco Value

0.04

Correlation Coefficient

ESH Acquisition  Invesco Value

Significant diversification

The 3 months correlation between ESH and Invesco is 0.04. Overlapping area represents the amount of risk that can be diversified away by holding ESH Acquisition Corp and Invesco Value Municipal in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Value Municipal and ESH Acquisition 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 ESH Acquisition Corp are associated (or correlated) with Invesco Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Value Municipal has no effect on the direction of ESH Acquisition i.e., ESH Acquisition and Invesco Value go up and down completely randomly.

Pair Corralation between ESH Acquisition and Invesco Value

Given the investment horizon of 90 days ESH Acquisition is expected to generate 1.91 times less return on investment than Invesco Value. In addition to that, ESH Acquisition is 1.49 times more volatile than Invesco Value Municipal. It trades about 0.04 of its total potential returns per unit of risk. Invesco Value Municipal is currently generating about 0.12 per unit of volatility. If you would invest  1,149  in Invesco Value Municipal on December 27, 2024 and sell it today you would earn a total of  49.00  from holding Invesco Value Municipal or generate 4.26% return on investment over 90 days.

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

ESH Acquisition Corp  vs.  Invesco Value Municipal

ESH Acquisition Corp

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ESH Acquisition Corp are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, ESH Acquisition is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Invesco Value Municipal

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Value Municipal are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy forward indicators, Invesco Value is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with ESH Acquisition and Invesco Value

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

The idea behind ESH Acquisition Corp and Invesco Value Municipal 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.