Correlation Between Invesco NASDAQ and SPDR Portfolio

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

Diversification Opportunities for Invesco NASDAQ and SPDR Portfolio

0.98

Correlation Coefficient

Invesco NASDAQ  SPDR Portfolio

Almost no diversification

The 3 months correlation between Invesco and SPDR is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Invesco NASDAQ 100 and SPDR Portfolio SP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio SP 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 SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio SP has no effect on the direction of Invesco NASDAQ i.e., Invesco NASDAQ and SPDR Portfolio go up and down completely randomly.

Pair Corralation between Invesco NASDAQ and SPDR Portfolio

Given the investment horizon of 90 days Invesco NASDAQ 100 is expected to under-perform the SPDR Portfolio. In addition to that, Invesco NASDAQ is 1.34 times more volatile than SPDR Portfolio SP. It trades about -0.07 of its total potential returns per unit of risk. SPDR Portfolio SP is currently generating about -0.09 per unit of volatility. If you would invest  6,920  in SPDR Portfolio SP on December 28, 2024 and sell it today you would lose (380.00) from holding SPDR Portfolio SP or give up 5.49% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Invesco NASDAQ 100  vs.  SPDR Portfolio SP

Invesco NASDAQ 100

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco NASDAQ 100 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

SPDR Portfolio SP

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Portfolio SP has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable essential indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Invesco NASDAQ and SPDR Portfolio

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

The idea behind Invesco NASDAQ 100 and SPDR Portfolio SP 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.