Correlation Between Invesco KBW and SPDR SP

Can any of the company-specific risk be diversified away by investing in both Invesco KBW 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 KBW 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 KBW Regional and SPDR SP Bank, you can compare the effects of market volatilities on Invesco KBW 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 KBW with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco KBW and SPDR SP.

Diversification Opportunities for Invesco KBW and SPDR SP

0.99

Correlation Coefficient

Invesco KBW  SPDR SP

No risk reduction

The 3 months correlation between Invesco and SPDR is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Invesco KBW Regional and SPDR SP Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Bank and Invesco KBW 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 KBW Regional 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 Bank has no effect on the direction of Invesco KBW i.e., Invesco KBW and SPDR SP go up and down completely randomly.

Pair Corralation between Invesco KBW and SPDR SP

Given the investment horizon of 90 days Invesco KBW Regional is expected to under-perform the SPDR SP. In addition to that, Invesco KBW is 1.03 times more volatile than SPDR SP Bank. It trades about -0.05 of its total potential returns per unit of risk. SPDR SP Bank is currently generating about -0.02 per unit of volatility. If you would invest  5,510  in SPDR SP Bank on December 28, 2024 and sell it today you would lose (149.00) from holding SPDR SP Bank or give up 2.7% of portfolio value over 90 days.

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

Invesco KBW Regional  vs.  SPDR SP Bank

Invesco KBW Regional

Risk-Adjusted Performance

Very Weak

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

SPDR SP Bank

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Bank has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound fundamental drivers, SPDR SP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco KBW and SPDR SP

The main advantage of trading using opposite Invesco KBW and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco KBW 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 KBW Regional and SPDR SP Bank 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.