Correlation Between Invesco SP and Schwab Large

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

Diversification Opportunities for Invesco SP and Schwab Large

0.65

Correlation Coefficient

Invesco SP  Schwab Large

Poor diversification

The 3 months correlation between Invesco and Schwab is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and Schwab Large Cap ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Large Cap 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 Schwab Large. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Large Cap has no effect on the direction of Invesco SP i.e., Invesco SP and Schwab Large go up and down completely randomly.

Pair Corralation between Invesco SP and Schwab Large

Considering the 90-day investment horizon Invesco SP is expected to generate 136.17 times less return on investment than Schwab Large. But when comparing it to its historical volatility, Invesco SP 500 is 1.09 times less risky than Schwab Large. It trades about 0.0 of its potential returns per unit of risk. Schwab Large Cap ETF is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  2,232  in Schwab Large Cap ETF on October 7, 2024 and sell it today you would earn a total of  113.00  from holding Schwab Large Cap ETF or generate 5.06% 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.  Schwab Large Cap ETF

Invesco SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Schwab Large Cap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Large Cap ETF are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, Schwab Large is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco SP and Schwab Large

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

The idea behind Invesco SP 500 and Schwab Large Cap 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.