Correlation Between Gabelli Equity and Invesco Municipal

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

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

Diversification Opportunities for Gabelli Equity and Invesco Municipal

0.65

Correlation Coefficient

Gabelli Equity  Invesco Municipal

Poor diversification

The 3 months correlation between Gabelli and Invesco is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding The Gabelli Equity and Invesco Municipal Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Municipal Trust and Gabelli Equity 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 The Gabelli Equity are associated (or correlated) with Invesco Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Municipal Trust has no effect on the direction of Gabelli Equity i.e., Gabelli Equity and Invesco Municipal go up and down completely randomly.

Pair Corralation between Gabelli Equity and Invesco Municipal

Assuming the 90 days trading horizon The Gabelli Equity is expected to under-perform the Invesco Municipal. In addition to that, Gabelli Equity is 1.46 times more volatile than Invesco Municipal Trust. It trades about -0.2 of its total potential returns per unit of risk. Invesco Municipal Trust is currently generating about -0.14 per unit of volatility. If you would invest  1,009  in Invesco Municipal Trust on October 7, 2024 and sell it today you would lose (21.00) from holding Invesco Municipal Trust or give up 2.08% of portfolio value over 90 days.

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

The Gabelli Equity  vs.  Invesco Municipal Trust

Gabelli Equity

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days The Gabelli Equity has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Preferred Stock's fundamental drivers remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Invesco Municipal Trust

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Municipal Trust has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable forward-looking signals, Invesco Municipal is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Gabelli Equity and Invesco Municipal

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

The idea behind The Gabelli Equity and Invesco Municipal Trust 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.