Correlation Between Invesco California and Invesco National

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

Diversification Opportunities for Invesco California and Invesco National

0.89

Correlation Coefficient

Invesco California  Invesco National

Very poor diversification

The 3 months correlation between Invesco and Invesco is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Invesco California AMT Free and Invesco National AMT Free in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco National AMT 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 Invesco National. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco National AMT has no effect on the direction of Invesco California i.e., Invesco California and Invesco National go up and down completely randomly.

Pair Corralation between Invesco California and Invesco National

Considering the 90-day investment horizon Invesco California is expected to generate 1.94 times less return on investment than Invesco National. But when comparing it to its historical volatility, Invesco California AMT Free is 1.09 times less risky than Invesco National. It trades about 0.08 of its potential returns per unit of risk. Invesco National AMT Free is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  2,346  in Invesco National AMT Free on December 4, 2024 and sell it today you would earn a total of  25.00  from holding Invesco National AMT Free or generate 1.07% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.24%
Values	Daily Returns

Invesco California AMT Free  vs.  Invesco National AMT Free

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.

Invesco National AMT

Risk-Adjusted Performance

Very Weak

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

Pair Trading with Invesco California and Invesco National

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

The idea behind Invesco California AMT Free and Invesco National AMT Free 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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.