Correlation Between American Funds and Invesco Developing

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

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

Diversification Opportunities for American Funds and Invesco Developing

0.88

Correlation Coefficient

American Funds  Invesco Developing

Very poor diversification

The 3 months correlation between American and Invesco is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding American Funds New and Invesco Developing Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Developing and American Funds 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 American Funds New 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 American Funds i.e., American Funds and Invesco Developing go up and down completely randomly.

Pair Corralation between American Funds and Invesco Developing

Assuming the 90 days horizon American Funds New is expected to generate 1.03 times more return on investment than Invesco Developing. However, American Funds is 1.03 times more volatile than Invesco Developing Markets. It trades about -0.15 of its potential returns per unit of risk. Invesco Developing Markets is currently generating about -0.17 per unit of risk. If you would invest  8,293  in American Funds New on October 21, 2024 and sell it today you would lose (546.00) from holding American Funds New or give up 6.58% of portfolio value over 90 days.

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

American Funds New  vs.  Invesco Developing Markets

American Funds New

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days American Funds New has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Invesco Developing

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Developing Markets has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with American Funds and Invesco Developing

The main advantage of trading using opposite American Funds and Invesco Developing positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds 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 American Funds New 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.