Correlation Between Guardian and Invesco FTSE

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

By analyzing existing cross correlation between Guardian i3 Quality and Invesco FTSE RAFI, you can compare the effects of market volatilities on Guardian and Invesco FTSE 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 Guardian with a short position of Invesco FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Guardian and Invesco FTSE.

Diversification Opportunities for Guardian and Invesco FTSE

0.77

Correlation Coefficient

Guardian  Invesco FTSE

Poor diversification

The 3 months correlation between Guardian and Invesco is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Guardian i3 Quality and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI and Guardian 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 Guardian i3 Quality are associated (or correlated) with Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of Guardian i.e., Guardian and Invesco FTSE go up and down completely randomly.

Pair Corralation between Guardian and Invesco FTSE

Assuming the 90 days trading horizon Guardian i3 Quality is expected to generate 1.95 times more return on investment than Invesco FTSE. However, Guardian is 1.95 times more volatile than Invesco FTSE RAFI. It trades about 0.04 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about -0.23 per unit of risk. If you would invest  3,190  in Guardian i3 Quality on October 10, 2024 and sell it today you would earn a total of  29.00  from holding Guardian i3 Quality or generate 0.91% return on investment over 90 days.

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

Guardian i3 Quality  vs.  Invesco FTSE RAFI

Guardian i3 Quality

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Guardian i3 Quality are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Guardian may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Invesco FTSE RAFI

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Invesco FTSE is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Guardian and Invesco FTSE

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

The idea behind Guardian i3 Quality and Invesco FTSE RAFI 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 Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.