Correlation Between Invesco SP and Invesco NASDAQ

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

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

Diversification Opportunities for Invesco SP and Invesco NASDAQ

0.82

Correlation Coefficient

Invesco SP  Invesco NASDAQ

Very poor diversification

The 3 months correlation between Invesco and Invesco is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP SmallCap and Invesco NASDAQ Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ Internet and Invesco SP 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 SP SmallCap are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ Internet has no effect on the direction of Invesco SP i.e., Invesco SP and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between Invesco SP and Invesco NASDAQ

Given the investment horizon of 90 days Invesco SP SmallCap is expected to under-perform the Invesco NASDAQ. But the etf apears to be less risky and, when comparing its historical volatility, Invesco SP SmallCap is 1.01 times less risky than Invesco NASDAQ. The etf trades about -0.06 of its potential returns per unit of risk. The Invesco NASDAQ Internet is currently generating about -0.06 of returns per unit of risk over similar time horizon. If you would invest  4,701  in Invesco NASDAQ Internet on December 29, 2024 and sell it today you would lose (275.00) from holding Invesco NASDAQ Internet or give up 5.85% of portfolio value over 90 days.

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

Invesco SP SmallCap  vs.  Invesco NASDAQ Internet

Invesco SP SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco SP SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental indicators, Invesco SP is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Invesco NASDAQ Internet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco NASDAQ Internet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Invesco NASDAQ is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Invesco SP and Invesco NASDAQ

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

The idea behind Invesco SP SmallCap and Invesco NASDAQ Internet 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.