Correlation Between Invesco FTSE and Invesco Markets

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

Diversification Opportunities for Invesco FTSE and Invesco Markets

0.06

Correlation Coefficient

Invesco FTSE  Invesco Markets

Significant diversification

The 3 months correlation between Invesco and Invesco is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and Invesco Markets III in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Markets III 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 Invesco Markets. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Markets III has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and Invesco Markets go up and down completely randomly.

Pair Corralation between Invesco FTSE and Invesco Markets

Assuming the 90 days trading horizon Invesco FTSE RAFI is expected to generate 0.61 times more return on investment than Invesco Markets. However, Invesco FTSE RAFI is 1.64 times less risky than Invesco Markets. It trades about 0.08 of its potential returns per unit of risk. Invesco Markets III is currently generating about 0.02 per unit of risk. If you would invest  2,594  in Invesco FTSE RAFI on September 28, 2024 and sell it today you would earn a total of  93.00  from holding Invesco FTSE RAFI or generate 3.59% return on investment over 90 days.

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

Invesco FTSE RAFI  vs.  Invesco Markets III

Invesco FTSE RAFI

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco FTSE RAFI are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Invesco FTSE is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco Markets III

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Markets III are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong technical indicators, Invesco Markets is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco FTSE and Invesco Markets

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

The idea behind Invesco FTSE RAFI and Invesco Markets III 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .