Correlation Between Invesco SP and Principal Quality

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

Diversification Opportunities for Invesco SP and Principal Quality

0.95

Correlation Coefficient

Invesco SP  Principal Quality

Almost no diversification

The 3 months correlation between Invesco and Principal is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and Principal Quality ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Principal Quality ETF 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 Principal Quality. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Principal Quality ETF has no effect on the direction of Invesco SP i.e., Invesco SP and Principal Quality go up and down completely randomly.

Pair Corralation between Invesco SP and Principal Quality

Considering the 90-day investment horizon Invesco SP 500 is expected to generate 0.7 times more return on investment than Principal Quality. However, Invesco SP 500 is 1.42 times less risky than Principal Quality. It trades about 0.16 of its potential returns per unit of risk. Principal Quality ETF is currently generating about 0.09 per unit of risk. If you would invest  17,518  in Invesco SP 500 on August 30, 2024 and sell it today you would earn a total of  1,187  from holding Invesco SP 500 or generate 6.78% return on investment over 90 days.

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

Invesco SP 500  vs.  Principal Quality ETF

Invesco SP 500

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Principal Quality ETF

Risk-Adjusted Performance

6 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Quality ETF are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable technical and fundamental indicators, Principal Quality is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Invesco SP and Principal Quality

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

The idea behind Invesco SP 500 and Principal Quality ETF 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.