Correlation Between Invesco SP and Principal Value

Can any of the company-specific risk be diversified away by investing in both Invesco SP and Principal Value 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 Principal Value 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 Principal Value ETF, you can compare the effects of market volatilities on Invesco SP and Principal Value 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 Principal Value. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and Principal Value.

Diversification Opportunities for Invesco SP and Principal Value

0.93

Correlation Coefficient

Invesco SP  Principal Value

Almost no diversification

The 3 months correlation between Invesco and Principal is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP SmallCap and Principal Value ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Value ETF 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 Principal Value. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Value ETF has no effect on the direction of Invesco SP i.e., Invesco SP and Principal Value go up and down completely randomly.

Pair Corralation between Invesco SP and Principal Value

Given the investment horizon of 90 days Invesco SP SmallCap is expected to generate 1.9 times more return on investment than Principal Value. However, Invesco SP is 1.9 times more volatile than Principal Value ETF. It trades about 0.21 of its potential returns per unit of risk. Principal Value ETF is currently generating about 0.19 per unit of risk. If you would invest  12,436  in Invesco SP SmallCap on September 1, 2024 and sell it today you would earn a total of  2,316  from holding Invesco SP SmallCap or generate 18.62% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.44%
Values	Daily Returns

Invesco SP SmallCap  vs.  Principal Value ETF

Invesco SP SmallCap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent fundamental indicators, Invesco SP demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Principal Value ETF

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Value ETF are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly uncertain basic indicators, Principal Value may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Invesco SP and Principal Value

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

The idea behind Invesco SP SmallCap and Principal Value ETF 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 Top Crypto Exchanges module to search and analyze digital assets across top global cryptocurrency exchanges.