Correlation Between SPDR SP and Invesco Exchange

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

Diversification Opportunities for SPDR SP and Invesco Exchange

0.22

Correlation Coefficient

SPDR SP  Invesco Exchange

Modest diversification

The 3 months correlation between SPDR and Invesco is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and Invesco Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Exchange Traded 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 Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Exchange Traded has no effect on the direction of SPDR SP i.e., SPDR SP and Invesco Exchange go up and down completely randomly.

Pair Corralation between SPDR SP and Invesco Exchange

Given the investment horizon of 90 days SPDR SP 400 is expected to under-perform the Invesco Exchange. In addition to that, SPDR SP is 1.38 times more volatile than Invesco Exchange Traded. It trades about -0.06 of its total potential returns per unit of risk. Invesco Exchange Traded is currently generating about 0.08 per unit of volatility. If you would invest  3,001  in Invesco Exchange Traded on December 28, 2024 and sell it today you would earn a total of  99.22  from holding Invesco Exchange Traded or generate 3.31% return on investment over 90 days.

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

SPDR SP 400  vs.  Invesco Exchange Traded

SPDR SP 400

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP 400 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, SPDR SP is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Invesco Exchange Traded

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Exchange Traded are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Invesco Exchange is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with SPDR SP and Invesco Exchange

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

The idea behind SPDR SP 400 and Invesco Exchange Traded 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.