Correlation Between SPDR SP and Invesco NASDAQ

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

By analyzing existing cross correlation between SPDR SP 400 and Invesco NASDAQ Next, you can compare the effects of market volatilities on SPDR SP and Invesco NASDAQ 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 SPDR SP with a short position of Invesco NASDAQ. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Invesco NASDAQ.

Diversification Opportunities for SPDR SP and Invesco NASDAQ

0.97

Correlation Coefficient

SPDR SP  Invesco NASDAQ

Almost no diversification

The 3 months correlation between SPDR and Invesco is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and Invesco NASDAQ Next in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ Next and SPDR SP 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 SPDR SP 400 are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ Next has no effect on the direction of SPDR SP i.e., SPDR SP and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between SPDR SP and Invesco NASDAQ

Given the investment horizon of 90 days SPDR SP is expected to generate 1.27 times less return on investment than Invesco NASDAQ. In addition to that, SPDR SP is 1.02 times more volatile than Invesco NASDAQ Next. It trades about 0.17 of its total potential returns per unit of risk. Invesco NASDAQ Next is currently generating about 0.22 per unit of volatility. If you would invest  2,866  in Invesco NASDAQ Next on September 12, 2024 and sell it today you would earn a total of  366.00  from holding Invesco NASDAQ Next or generate 12.77% return on investment over 90 days.

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

SPDR SP 400  vs.  Invesco NASDAQ Next

SPDR SP 400

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 400 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly abnormal basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco NASDAQ Next

Risk-Adjusted Performance

17 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco NASDAQ Next are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating basic indicators, Invesco NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and Invesco NASDAQ

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

The idea behind SPDR SP 400 and Invesco NASDAQ Next 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.