Correlation Between Lyxor PEA and Invesco SP

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

By analyzing existing cross correlation between Lyxor PEA Nasdaq and Invesco SP 500, you can compare the effects of market volatilities on Lyxor PEA and Invesco SP 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 Lyxor PEA with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lyxor PEA and Invesco SP.

Diversification Opportunities for Lyxor PEA and Invesco SP

0.66

Correlation Coefficient

Lyxor PEA  Invesco SP

Poor diversification

The 3 months correlation between Lyxor and Invesco is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding Lyxor PEA Nasdaq and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and Lyxor PEA 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 Lyxor PEA Nasdaq are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of Lyxor PEA i.e., Lyxor PEA and Invesco SP go up and down completely randomly.

Pair Corralation between Lyxor PEA and Invesco SP

Assuming the 90 days trading horizon Lyxor PEA Nasdaq is expected to generate 1.39 times more return on investment than Invesco SP. However, Lyxor PEA is 1.39 times more volatile than Invesco SP 500. It trades about 0.2 of its potential returns per unit of risk. Invesco SP 500 is currently generating about -0.37 per unit of risk. If you would invest  7,996  in Lyxor PEA Nasdaq on September 27, 2024 and sell it today you would earn a total of  321.00  from holding Lyxor PEA Nasdaq or generate 4.01% return on investment over 90 days.

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

Lyxor PEA Nasdaq  vs.  Invesco SP 500

Lyxor PEA Nasdaq

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Lyxor PEA Nasdaq are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Lyxor PEA sustained solid returns over the last few months and may actually be approaching a breakup point.

Invesco SP 500

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong basic indicators, Invesco SP is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Lyxor PEA and Invesco SP

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

The idea behind Lyxor PEA Nasdaq and Invesco SP 500 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 Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.