Correlation Between Morningstar Municipal and Invesco Growth

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

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

Diversification Opportunities for Morningstar Municipal and Invesco Growth

0.63

Correlation Coefficient

Morningstar Municipal  Invesco Growth

Poor diversification

The 3 months correlation between Morningstar and Invesco is 0.63. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar Municipal Bond and Invesco Growth Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Growth Allocation and Morningstar Municipal 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 Morningstar Municipal Bond are associated (or correlated) with Invesco Growth. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Growth Allocation has no effect on the direction of Morningstar Municipal i.e., Morningstar Municipal and Invesco Growth go up and down completely randomly.

Pair Corralation between Morningstar Municipal and Invesco Growth

Assuming the 90 days horizon Morningstar Municipal is expected to generate 6.49 times less return on investment than Invesco Growth. But when comparing it to its historical volatility, Morningstar Municipal Bond is 3.28 times less risky than Invesco Growth. It trades about 0.02 of its potential returns per unit of risk. Invesco Growth Allocation is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  1,544  in Invesco Growth Allocation on October 26, 2024 and sell it today you would earn a total of  20.00  from holding Invesco Growth Allocation or generate 1.3% return on investment over 90 days.

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

Morningstar Municipal Bond  vs.  Invesco Growth Allocation

Morningstar Municipal

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Morningstar Municipal Bond are ranked lower than 1 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Morningstar Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco Growth Allocation

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Growth Allocation are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Invesco Growth is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Morningstar Municipal and Invesco Growth

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

The idea behind Morningstar Municipal Bond and Invesco Growth Allocation 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.