Correlation Between Meridian Small and Invesco Porate

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

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

Diversification Opportunities for Meridian Small and Invesco Porate

-0.27

Correlation Coefficient

Meridian Small  Invesco Porate

Very good diversification

The 3 months correlation between Meridian and Invesco is -0.27. Overlapping area represents the amount of risk that can be diversified away by holding Meridian Small Cap and Invesco Porate Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Porate Bond and Meridian Small 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 Meridian Small Cap are associated (or correlated) with Invesco Porate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Porate Bond has no effect on the direction of Meridian Small i.e., Meridian Small and Invesco Porate go up and down completely randomly.

Pair Corralation between Meridian Small and Invesco Porate

Assuming the 90 days horizon Meridian Small Cap is expected to generate 1.97 times more return on investment than Invesco Porate. However, Meridian Small is 1.97 times more volatile than Invesco Porate Bond. It trades about 0.2 of its potential returns per unit of risk. Invesco Porate Bond is currently generating about 0.11 per unit of risk. If you would invest  1,288  in Meridian Small Cap on September 17, 2024 and sell it today you would earn a total of  35.00  from holding Meridian Small Cap or generate 2.72% return on investment over 90 days.

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

Meridian Small Cap  vs.  Invesco Porate Bond

Meridian Small Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Meridian Small Cap are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Meridian Small is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco Porate Bond

Risk-Adjusted Performance

0 of 100

Very Weak

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

Pair Trading with Meridian Small and Invesco Porate

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

The idea behind Meridian Small Cap and Invesco Porate Bond 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.