Correlation Between International Drawdown and Invesco SP

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

By analyzing existing cross correlation between International Drawdown Managed and Invesco SP 500, you can compare the effects of market volatilities on International Drawdown and Invesco 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 International Drawdown with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of International Drawdown and Invesco SP.

Diversification Opportunities for International Drawdown and Invesco SP

-0.54

Correlation Coefficient

International Drawdown  Invesco SP

Excellent diversification

The 3 months correlation between International and Invesco is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding International Drawdown Managed and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and International Drawdown 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 International Drawdown Managed are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of International Drawdown i.e., International Drawdown and Invesco SP go up and down completely randomly.

Pair Corralation between International Drawdown and Invesco SP

Given the investment horizon of 90 days International Drawdown is expected to generate 1.71 times less return on investment than Invesco SP. But when comparing it to its historical volatility, International Drawdown Managed is 1.32 times less risky than Invesco SP. It trades about 0.05 of its potential returns per unit of risk. Invesco SP 500 is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  1,779  in Invesco SP 500 on September 19, 2024 and sell it today you would earn a total of  560.00  from holding Invesco SP 500 or generate 31.48% return on investment over 90 days.

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

International Drawdown Managed  vs.  Invesco SP 500

International Drawdown

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days International Drawdown Managed has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, International Drawdown is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco SP 500

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable fundamental drivers, Invesco SP 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 International Drawdown and Invesco SP

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

The idea behind International Drawdown Managed and Invesco SP 500 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.