Correlation Between Financials Ultrasector and Invesco International

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

By analyzing existing cross correlation between Financials Ultrasector Profund and Invesco International Diversified, you can compare the effects of market volatilities on Financials Ultrasector and Invesco International 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 Financials Ultrasector with a short position of Invesco International. Check out your portfolio center. Please also check ongoing floating volatility patterns of Financials Ultrasector and Invesco International.

Diversification Opportunities for Financials Ultrasector and Invesco International

0.5

Correlation Coefficient

Financials Ultrasector  Invesco International

Very weak diversification

The 3 months correlation between Financials and Invesco is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding Financials Ultrasector Profund and Invesco International Diversif in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco International and Financials Ultrasector 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 Financials Ultrasector Profund are associated (or correlated) with Invesco International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco International has no effect on the direction of Financials Ultrasector i.e., Financials Ultrasector and Invesco International go up and down completely randomly.

Pair Corralation between Financials Ultrasector and Invesco International

Assuming the 90 days horizon Financials Ultrasector Profund is expected to under-perform the Invesco International. In addition to that, Financials Ultrasector is 1.82 times more volatile than Invesco International Diversified. It trades about -0.01 of its total potential returns per unit of risk. Invesco International Diversified is currently generating about 0.07 per unit of volatility. If you would invest  1,521  in Invesco International Diversified on December 24, 2024 and sell it today you would earn a total of  51.00  from holding Invesco International Diversified or generate 3.35% return on investment over 90 days.

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

Financials Ultrasector Profund  vs.  Invesco International Diversif

Financials Ultrasector

Risk-Adjusted Performance

Very Weak

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

Invesco International

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco International Diversified are ranked lower than 5 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Invesco International is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Financials Ultrasector and Invesco International

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

The idea behind Financials Ultrasector Profund and Invesco International Diversified 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.