Correlation Between Select STOXX and Invesco SP

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

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

Diversification Opportunities for Select STOXX and Invesco SP

0.61

Correlation Coefficient

Select STOXX  Invesco SP

Poor diversification

The 3 months correlation between Select and Invesco is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Select STOXX Europe and Invesco SP Global in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP Global and Select STOXX 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 Select STOXX Europe 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 Global has no effect on the direction of Select STOXX i.e., Select STOXX and Invesco SP go up and down completely randomly.

Pair Corralation between Select STOXX and Invesco SP

Given the investment horizon of 90 days Select STOXX Europe is expected to generate 2.41 times more return on investment than Invesco SP. However, Select STOXX is 2.41 times more volatile than Invesco SP Global. It trades about 0.29 of its potential returns per unit of risk. Invesco SP Global is currently generating about 0.03 per unit of risk. If you would invest  2,461  in Select STOXX Europe on December 25, 2024 and sell it today you would earn a total of  1,011  from holding Select STOXX Europe or generate 41.08% return on investment over 90 days.

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

Select STOXX Europe  vs.  Invesco SP Global

Select STOXX Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Select STOXX Europe are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain basic indicators, Select STOXX exhibited solid returns over the last few months and may actually be approaching a breakup point.

Invesco SP Global

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP Global are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable technical and fundamental indicators, Invesco SP is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Select STOXX and Invesco SP

The main advantage of trading using opposite Select STOXX and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Select STOXX 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 Select STOXX Europe and Invesco SP Global 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 Global Correlations module to find global opportunities by holding instruments from different markets.