Correlation Between Invesco NASDAQ and Desjardins

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

By analyzing existing cross correlation between Invesco NASDAQ 100 and Desjardins RI Canada, you can compare the effects of market volatilities on Invesco NASDAQ and Desjardins 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 NASDAQ with a short position of Desjardins. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco NASDAQ and Desjardins.

Diversification Opportunities for Invesco NASDAQ and Desjardins

0.97

Correlation Coefficient

Invesco NASDAQ  Desjardins

Almost no diversification

The 3 months correlation between Invesco and Desjardins is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Invesco NASDAQ 100 and Desjardins RI Canada in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Desjardins RI Canada and Invesco NASDAQ 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 NASDAQ 100 are associated (or correlated) with Desjardins. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Desjardins RI Canada has no effect on the direction of Invesco NASDAQ i.e., Invesco NASDAQ and Desjardins go up and down completely randomly.

Pair Corralation between Invesco NASDAQ and Desjardins

Assuming the 90 days trading horizon Invesco NASDAQ 100 is expected to generate 1.96 times more return on investment than Desjardins. However, Invesco NASDAQ is 1.96 times more volatile than Desjardins RI Canada. It trades about 0.25 of its potential returns per unit of risk. Desjardins RI Canada is currently generating about 0.36 per unit of risk. If you would invest  3,155  in Invesco NASDAQ 100 on September 13, 2024 and sell it today you would earn a total of  510.00  from holding Invesco NASDAQ 100 or generate 16.16% return on investment over 90 days.

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

Invesco NASDAQ 100  vs.  Desjardins RI Canada

Invesco NASDAQ 100

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco NASDAQ 100 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain fundamental indicators, Invesco NASDAQ displayed solid returns over the last few months and may actually be approaching a breakup point.

Desjardins RI Canada

Risk-Adjusted Performance

28 of 100

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Desjardins RI Canada are ranked lower than 28 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating basic indicators, Desjardins may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco NASDAQ and Desjardins

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

The idea behind Invesco NASDAQ 100 and Desjardins RI Canada 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 Analyzer module to portfolio analysis module that provides access to portfolio diagnostics and optimization engine.