Correlation Between Invesco 1 and Invesco FTSE

Can any of the company-specific risk be diversified away by investing in both Invesco 1 and Invesco FTSE 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 1 and Invesco FTSE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Invesco 1 5 Year and Invesco FTSE RAFI, you can compare the effects of market volatilities on Invesco 1 and Invesco FTSE 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 1 with a short position of Invesco FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco 1 and Invesco FTSE.

Diversification Opportunities for Invesco 1 and Invesco FTSE

0.56

Correlation Coefficient

Invesco 1  Invesco FTSE

Very weak diversification

The 3 months correlation between Invesco and Invesco is 0.56. Overlapping area represents the amount of risk that can be diversified away by holding Invesco 1 5 Year and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI and Invesco 1 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 1 5 Year are associated (or correlated) with Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of Invesco 1 i.e., Invesco 1 and Invesco FTSE go up and down completely randomly.

Pair Corralation between Invesco 1 and Invesco FTSE

Assuming the 90 days trading horizon Invesco 1 is expected to generate 2.65 times less return on investment than Invesco FTSE. But when comparing it to its historical volatility, Invesco 1 5 Year is 3.01 times less risky than Invesco FTSE. It trades about 0.11 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  3,194  in Invesco FTSE RAFI on September 4, 2024 and sell it today you would earn a total of  1,148  from holding Invesco FTSE RAFI or generate 35.94% return on investment over 90 days.

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

Invesco 1 5 Year  vs.  Invesco FTSE RAFI

Invesco 1 5

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco 1 5 Year are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy fundamental drivers, Invesco 1 is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Invesco FTSE RAFI

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. In spite of very weak fundamental indicators, Invesco FTSE may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco 1 and Invesco FTSE

The main advantage of trading using opposite Invesco 1 and Invesco FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco 1 position performs unexpectedly, Invesco FTSE 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 FTSE will offset losses from the drop in Invesco FTSE's long position.

The idea behind Invesco 1 5 Year and Invesco FTSE RAFI 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.