Correlation Between Large Cap and Invesco Select

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

By analyzing existing cross correlation between Large Cap Growth Profund and Invesco Select Risk, you can compare the effects of market volatilities on Large Cap and Invesco Select 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 Large Cap with a short position of Invesco Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Large Cap and Invesco Select.

Diversification Opportunities for Large Cap and Invesco Select

0.7

Correlation Coefficient

Large Cap  Invesco Select

Poor diversification

The 3 months correlation between Large and Invesco is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Large Cap Growth Profund and Invesco Select Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Select Risk and Large Cap 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 Large Cap Growth Profund are associated (or correlated) with Invesco Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Select Risk has no effect on the direction of Large Cap i.e., Large Cap and Invesco Select go up and down completely randomly.

Pair Corralation between Large Cap and Invesco Select

Assuming the 90 days horizon Large Cap Growth Profund is expected to under-perform the Invesco Select. In addition to that, Large Cap is 2.53 times more volatile than Invesco Select Risk. It trades about -0.11 of its total potential returns per unit of risk. Invesco Select Risk is currently generating about 0.01 per unit of volatility. If you would invest  1,115  in Invesco Select Risk on December 20, 2024 and sell it today you would earn a total of  1.00  from holding Invesco Select Risk or generate 0.09% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	98.33%
Values	Daily Returns

Large Cap Growth Profund  vs.  Invesco Select Risk

Large Cap Growth

Risk-Adjusted Performance

Very Weak

Over the last 90 days Large Cap Growth Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Invesco Select Risk

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Select Risk has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Invesco Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Large Cap and Invesco Select

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

The idea behind Large Cap Growth Profund and Invesco Select Risk 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 Piotroski F Score module to get Piotroski F Score based on the binary analysis strategy of nine different fundamentals.