Correlation Between Invesco Energy and Nuveen Municipal

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

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

Diversification Opportunities for Invesco Energy and Nuveen Municipal

0.44

Correlation Coefficient

Invesco Energy  Nuveen Municipal

Very weak diversification

The 3 months correlation between Invesco and Nuveen is 0.44. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Energy Fund and Nuveen Municipal High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nuveen Municipal High and Invesco Energy 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 Energy Fund are associated (or correlated) with Nuveen Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nuveen Municipal High has no effect on the direction of Invesco Energy i.e., Invesco Energy and Nuveen Municipal go up and down completely randomly.

Pair Corralation between Invesco Energy and Nuveen Municipal

Assuming the 90 days horizon Invesco Energy Fund is expected to generate 1.9 times more return on investment than Nuveen Municipal. However, Invesco Energy is 1.9 times more volatile than Nuveen Municipal High. It trades about 0.15 of its potential returns per unit of risk. Nuveen Municipal High is currently generating about 0.11 per unit of risk. If you would invest  2,306  in Invesco Energy Fund on December 26, 2024 and sell it today you would earn a total of  227.00  from holding Invesco Energy Fund or generate 9.84% return on investment over 90 days.

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

Invesco Energy Fund  vs.  Nuveen Municipal High

Invesco Energy

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Energy Fund are ranked lower than 11 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Invesco Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Nuveen Municipal High

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Nuveen Municipal High are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Nuveen Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco Energy and Nuveen Municipal

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

The idea behind Invesco Energy Fund and Nuveen Municipal High 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.