Correlation Between Invesco SP and Invesco KBW

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

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

Diversification Opportunities for Invesco SP and Invesco KBW

0.69

Correlation Coefficient

Invesco SP  Invesco KBW

Poor diversification

The 3 months correlation between Invesco and Invesco is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and Invesco KBW High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW High and Invesco SP 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 SP 500 are associated (or correlated) with Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW High has no effect on the direction of Invesco SP i.e., Invesco SP and Invesco KBW go up and down completely randomly.

Pair Corralation between Invesco SP and Invesco KBW

Considering the 90-day investment horizon Invesco SP 500 is expected to generate 1.01 times more return on investment than Invesco KBW. However, Invesco SP is 1.01 times more volatile than Invesco KBW High. It trades about 0.17 of its potential returns per unit of risk. Invesco KBW High is currently generating about 0.06 per unit of risk. If you would invest  4,897  in Invesco SP 500 on September 13, 2024 and sell it today you would earn a total of  451.00  from holding Invesco SP 500 or generate 9.21% return on investment over 90 days.

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

Invesco SP 500  vs.  Invesco KBW High

Invesco SP 500

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite fairly inconsistent technical and fundamental indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco KBW High

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco KBW High are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, Invesco KBW is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco SP and Invesco KBW

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

The idea behind Invesco SP 500 and Invesco KBW High 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 Sign In To Macroaxis module to sign in to explore Macroaxis' wealth optimization platform and fintech modules.