Correlation Between Invesco Total and Northern Lights

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

By analyzing existing cross correlation between Invesco Total Return and Northern Lights, you can compare the effects of market volatilities on Invesco Total and Northern Lights 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 Invesco Total with a short position of Northern Lights. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Total and Northern Lights.

Diversification Opportunities for Invesco Total and Northern Lights

0.96

Correlation Coefficient

Invesco Total  Northern Lights

Almost no diversification

The 3 months correlation between Invesco and Northern is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Total Return and Northern Lights in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Northern Lights and Invesco Total 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 Invesco Total Return are associated (or correlated) with Northern Lights. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Northern Lights has no effect on the direction of Invesco Total i.e., Invesco Total and Northern Lights go up and down completely randomly.

Pair Corralation between Invesco Total and Northern Lights

Considering the 90-day investment horizon Invesco Total is expected to generate 1.25 times less return on investment than Northern Lights. But when comparing it to its historical volatility, Invesco Total Return is 1.13 times less risky than Northern Lights. It trades about 0.12 of its potential returns per unit of risk. Northern Lights is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  2,211  in Northern Lights on December 29, 2024 and sell it today you would earn a total of  52.00  from holding Northern Lights or generate 2.35% return on investment over 90 days.

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

Invesco Total Return  vs.  Northern Lights

Invesco Total Return

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Total Return are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Invesco Total is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Northern Lights

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Northern Lights are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong primary indicators, Northern Lights is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco Total and Northern Lights

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

The idea behind Invesco Total Return and Northern Lights 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.