Correlation Between ETRACS 2xMonthly and Invesco SP

Can any of the company-specific risk be diversified away by investing in both ETRACS 2xMonthly and Invesco 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 ETRACS 2xMonthly and Invesco SP into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between ETRACS 2xMonthly Pay and Invesco SP 500, you can compare the effects of market volatilities on ETRACS 2xMonthly and Invesco 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 ETRACS 2xMonthly with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of ETRACS 2xMonthly and Invesco SP.

Diversification Opportunities for ETRACS 2xMonthly and Invesco SP

-0.64

Correlation Coefficient

ETRACS 2xMonthly  Invesco SP

Excellent diversification

The 3 months correlation between ETRACS and Invesco is -0.64. Overlapping area represents the amount of risk that can be diversified away by holding ETRACS 2xMonthly Pay and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and ETRACS 2xMonthly 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 ETRACS 2xMonthly Pay are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of ETRACS 2xMonthly i.e., ETRACS 2xMonthly and Invesco SP go up and down completely randomly.

Pair Corralation between ETRACS 2xMonthly and Invesco SP

Given the investment horizon of 90 days ETRACS 2xMonthly Pay is expected to under-perform the Invesco SP. In addition to that, ETRACS 2xMonthly is 1.39 times more volatile than Invesco SP 500. It trades about -0.09 of its total potential returns per unit of risk. Invesco SP 500 is currently generating about 0.13 per unit of volatility. If you would invest  10,157  in Invesco SP 500 on September 15, 2024 and sell it today you would earn a total of  736.00  from holding Invesco SP 500 or generate 7.25% return on investment over 90 days.

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

ETRACS 2xMonthly Pay  vs.  Invesco SP 500

ETRACS 2xMonthly Pay

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days ETRACS 2xMonthly Pay has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Etf's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the ETF venture institutional investors.

Invesco SP 500

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively unfluctuating technical and fundamental indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with ETRACS 2xMonthly and Invesco SP

The main advantage of trading using opposite ETRACS 2xMonthly and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ETRACS 2xMonthly position performs unexpectedly, Invesco 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 Invesco SP will offset losses from the drop in Invesco SP's long position.

The idea behind ETRACS 2xMonthly Pay and Invesco SP 500 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.