Correlation Between Invesco European and Invesco Developing

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

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

Diversification Opportunities for Invesco European and Invesco Developing

0.87

Correlation Coefficient

Invesco European  Invesco Developing

Very poor diversification

The 3 months correlation between Invesco and Invesco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Invesco European Small and Invesco Developing Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Developing and Invesco European 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 European Small are associated (or correlated) with Invesco Developing. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Developing has no effect on the direction of Invesco European i.e., Invesco European and Invesco Developing go up and down completely randomly.

Pair Corralation between Invesco European and Invesco Developing

Assuming the 90 days horizon Invesco European Small is expected to generate 0.95 times more return on investment than Invesco Developing. However, Invesco European Small is 1.05 times less risky than Invesco Developing. It trades about 0.13 of its potential returns per unit of risk. Invesco Developing Markets is currently generating about 0.04 per unit of risk. If you would invest  1,276  in Invesco European Small on December 29, 2024 and sell it today you would earn a total of  88.00  from holding Invesco European Small or generate 6.9% return on investment over 90 days.

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

Invesco European Small  vs.  Invesco Developing Markets

Invesco European Small

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco European Small are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Invesco European may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Invesco Developing

Risk-Adjusted Performance

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Developing Markets are ranked lower than 3 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong fundamental indicators, Invesco Developing 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 European and Invesco Developing

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

The idea behind Invesco European Small and Invesco Developing Markets 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.