Correlation Between Invesco High and SPDR SP

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

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

Diversification Opportunities for Invesco High and SPDR SP

0.88

Correlation Coefficient

Invesco High  SPDR SP

Very poor diversification

The 3 months correlation between Invesco and SPDR is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Invesco High Yield and SPDR SP 400 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 400 and Invesco High 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 High Yield are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 400 has no effect on the direction of Invesco High i.e., Invesco High and SPDR SP go up and down completely randomly.

Pair Corralation between Invesco High and SPDR SP

Considering the 90-day investment horizon Invesco High Yield is expected to generate 0.87 times more return on investment than SPDR SP. However, Invesco High Yield is 1.15 times less risky than SPDR SP. It trades about -0.08 of its potential returns per unit of risk. SPDR SP 400 is currently generating about -0.12 per unit of risk. If you would invest  2,274  in Invesco High Yield on November 28, 2024 and sell it today you would lose (81.00) from holding Invesco High Yield or give up 3.56% of portfolio value over 90 days.

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

Invesco High Yield  vs.  SPDR SP 400

Invesco High Yield

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco High Yield has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical and fundamental indicators, Invesco High is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

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 latest fragile performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Invesco High and SPDR SP

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

The idea behind Invesco High Yield and SPDR SP 400 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.