Correlation Between Invesco FTSE and Principal Small

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

By analyzing existing cross correlation between Invesco FTSE RAFI and Principal Small Cap Multi Factor, you can compare the effects of market volatilities on Invesco FTSE and Principal Small 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 FTSE with a short position of Principal Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco FTSE and Principal Small.

Diversification Opportunities for Invesco FTSE and Principal Small

0.99

Correlation Coefficient

Invesco FTSE  Principal Small

No risk reduction

The 3 months correlation between Invesco and Principal is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and Principal Small Cap Multi Fact in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Small Cap and Invesco FTSE 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 FTSE RAFI are associated (or correlated) with Principal Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Small Cap has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and Principal Small go up and down completely randomly.

Pair Corralation between Invesco FTSE and Principal Small

Given the investment horizon of 90 days Invesco FTSE RAFI is expected to under-perform the Principal Small. But the etf apears to be less risky and, when comparing its historical volatility, Invesco FTSE RAFI is 1.06 times less risky than Principal Small. The etf trades about -0.12 of its potential returns per unit of risk. The Principal Small Cap Multi Factor is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  5,110  in Principal Small Cap Multi Factor on December 30, 2024 and sell it today you would lose (288.00) from holding Principal Small Cap Multi Factor or give up 5.64% of portfolio value over 90 days.

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

Invesco FTSE RAFI  vs.  Principal Small Cap Multi Fact

Invesco FTSE RAFI

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco FTSE RAFI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest fragile performance, the Etf's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Principal Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Principal Small Cap Multi Factor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Principal Small is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco FTSE and Principal Small

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

The idea behind Invesco FTSE RAFI and Principal Small Cap Multi Factor 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.

Check out your portfolio center.

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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.