Correlation Between Invesco California and VanEck Intermediate

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

By analyzing existing cross correlation between Invesco California AMT Free and VanEck Intermediate Muni, you can compare the effects of market volatilities on Invesco California and VanEck Intermediate 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 California with a short position of VanEck Intermediate. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco California and VanEck Intermediate.

Diversification Opportunities for Invesco California and VanEck Intermediate

0.76

Correlation Coefficient

Invesco California  VanEck Intermediate

Poor diversification

The 3 months correlation between Invesco and VanEck is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Invesco California AMT Free and VanEck Intermediate Muni in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Intermediate Muni and Invesco California 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 California AMT Free are associated (or correlated) with VanEck Intermediate. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Intermediate Muni has no effect on the direction of Invesco California i.e., Invesco California and VanEck Intermediate go up and down completely randomly.

Pair Corralation between Invesco California and VanEck Intermediate

Considering the 90-day investment horizon Invesco California AMT Free is expected to under-perform the VanEck Intermediate. In addition to that, Invesco California is 1.69 times more volatile than VanEck Intermediate Muni. It trades about -0.11 of its total potential returns per unit of risk. VanEck Intermediate Muni is currently generating about -0.08 per unit of volatility. If you would invest  4,577  in VanEck Intermediate Muni on December 27, 2024 and sell it today you would lose (56.00) from holding VanEck Intermediate Muni or give up 1.22% of portfolio value over 90 days.

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

Invesco California AMT Free  vs.  VanEck Intermediate Muni

Invesco California AMT

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco California AMT Free has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Invesco California is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

VanEck Intermediate Muni

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Intermediate Muni has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, VanEck Intermediate is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Invesco California and VanEck Intermediate

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

The idea behind Invesco California AMT Free and VanEck Intermediate Muni 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 Portfolio File Import module to quickly import all of your third-party portfolios from your local drive in csv format.