Correlation Between Invesco Water and SPDR SP

Can any of the company-specific risk be diversified away by investing in both Invesco Water 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 Water 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 Water Resources and SPDR SP North, you can compare the effects of market volatilities on Invesco Water 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 Water with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Water and SPDR SP.

Diversification Opportunities for Invesco Water and SPDR SP

0.23

Correlation Coefficient

Invesco Water  SPDR SP

Modest diversification

The 3 months correlation between Invesco and SPDR is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Water Resources and SPDR SP North in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP North and Invesco Water 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 Water Resources 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 North has no effect on the direction of Invesco Water i.e., Invesco Water and SPDR SP go up and down completely randomly.

Pair Corralation between Invesco Water and SPDR SP

Considering the 90-day investment horizon Invesco Water Resources is expected to under-perform the SPDR SP. But the etf apears to be less risky and, when comparing its historical volatility, Invesco Water Resources is 1.11 times less risky than SPDR SP. The etf trades about -0.01 of its potential returns per unit of risk. The SPDR SP North is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  5,065  in SPDR SP North on December 28, 2024 and sell it today you would earn a total of  532.00  from holding SPDR SP North or generate 10.5% return on investment over 90 days.

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

Invesco Water Resources  vs.  SPDR SP North

Invesco Water Resources

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Water Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Invesco Water is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

SPDR SP North

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP North are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Pair Trading with Invesco Water and SPDR SP

The main advantage of trading using opposite Invesco Water and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Water 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 Water Resources and SPDR SP North 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.