Correlation Between US Global and Invesco Aerospace

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

By analyzing existing cross correlation between US Global Jets and Invesco Aerospace Defense, you can compare the effects of market volatilities on US Global and Invesco Aerospace 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 US Global with a short position of Invesco Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of US Global and Invesco Aerospace.

Diversification Opportunities for US Global and Invesco Aerospace

0.87

Correlation Coefficient

US Global  Invesco Aerospace

Very poor diversification

The 3 months correlation between JETS and Invesco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding US Global Jets and Invesco Aerospace Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Aerospace Defense and US Global 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 US Global Jets are associated (or correlated) with Invesco Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Aerospace Defense has no effect on the direction of US Global i.e., US Global and Invesco Aerospace go up and down completely randomly.

Pair Corralation between US Global and Invesco Aerospace

Given the investment horizon of 90 days US Global Jets is expected to generate 1.32 times more return on investment than Invesco Aerospace. However, US Global is 1.32 times more volatile than Invesco Aerospace Defense. It trades about 0.3 of its potential returns per unit of risk. Invesco Aerospace Defense is currently generating about 0.09 per unit of risk. If you would invest  1,870  in US Global Jets on August 30, 2024 and sell it today you would earn a total of  579.00  from holding US Global Jets or generate 30.96% return on investment over 90 days.

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

US Global Jets  vs.  Invesco Aerospace Defense

US Global Jets

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in US Global Jets are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unfluctuating basic indicators, US Global unveiled solid returns over the last few months and may actually be approaching a breakup point.

Invesco Aerospace Defense

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Aerospace Defense are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Invesco Aerospace may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with US Global and Invesco Aerospace

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

The idea behind US Global Jets and Invesco Aerospace Defense 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.