Correlation Between Invesco Nasdaq and SPDR SP

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

By analyzing existing cross correlation between Invesco Nasdaq Biotechnology and SPDR SP Semiconductor, you can compare the effects of market volatilities on Invesco Nasdaq and SPDR SP 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 Nasdaq with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Nasdaq and SPDR SP.

Diversification Opportunities for Invesco Nasdaq and SPDR SP

-0.25

Correlation Coefficient

Invesco Nasdaq  SPDR SP

Very good diversification

The 3 months correlation between Invesco and SPDR is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Nasdaq Biotechnology and SPDR SP Semiconductor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Semiconductor and Invesco Nasdaq 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 Nasdaq Biotechnology are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Semiconductor has no effect on the direction of Invesco Nasdaq i.e., Invesco Nasdaq and SPDR SP go up and down completely randomly.

Pair Corralation between Invesco Nasdaq and SPDR SP

Given the investment horizon of 90 days Invesco Nasdaq Biotechnology is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, Invesco Nasdaq Biotechnology is 1.61 times less risky than SPDR SP. The etf trades about -0.06 of its potential returns per unit of risk. The SPDR SP Semiconductor is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  24,672  in SPDR SP Semiconductor on October 26, 2024 and sell it today you would earn a total of  2,336  from holding SPDR SP Semiconductor or generate 9.47% return on investment over 90 days.

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

Invesco Nasdaq Biotechnology  vs.  SPDR SP Semiconductor

Invesco Nasdaq Biote

Risk-Adjusted Performance

0 of 100

Very Weak

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

SPDR SP Semiconductor

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Semiconductor are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Invesco Nasdaq and SPDR SP

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

The idea behind Invesco Nasdaq Biotechnology and SPDR SP Semiconductor 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.