Correlation Between Invesco Emerging and Invesco Senior

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

By analyzing existing cross correlation between Invesco Emerging Markets and Invesco Senior Loan, you can compare the effects of market volatilities on Invesco Emerging and Invesco Senior 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 Invesco Emerging with a short position of Invesco Senior. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Emerging and Invesco Senior.

Diversification Opportunities for Invesco Emerging and Invesco Senior

0.05

Correlation Coefficient

Invesco Emerging  Invesco Senior

Significant diversification

The 3 months correlation between Invesco and Invesco is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Emerging Markets and Invesco Senior Loan in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Senior Loan and Invesco Emerging 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 Invesco Emerging Markets are associated (or correlated) with Invesco Senior. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Senior Loan has no effect on the direction of Invesco Emerging i.e., Invesco Emerging and Invesco Senior go up and down completely randomly.

Pair Corralation between Invesco Emerging and Invesco Senior

Considering the 90-day investment horizon Invesco Emerging Markets is expected to generate 4.15 times more return on investment than Invesco Senior. However, Invesco Emerging is 4.15 times more volatile than Invesco Senior Loan. It trades about 0.07 of its potential returns per unit of risk. Invesco Senior Loan is currently generating about 0.01 per unit of risk. If you would invest  1,964  in Invesco Emerging Markets on December 29, 2024 and sell it today you would earn a total of  40.00  from holding Invesco Emerging Markets or generate 2.04% return on investment over 90 days.

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

Invesco Emerging Markets  vs.  Invesco Senior Loan

Invesco Emerging Markets

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Emerging Markets are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, Invesco Emerging is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco Senior Loan

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Senior Loan are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy essential indicators, Invesco Senior is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Invesco Emerging and Invesco Senior

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

The idea behind Invesco Emerging Markets and Invesco Senior Loan 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.