Correlation Between Invesco SP and SPDR SP

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

By analyzing existing cross correlation between Invesco SP MidCap and SPDR SP Dividend, you can compare the effects of market volatilities on Invesco SP and SPDR SP 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 SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and SPDR SP.

Diversification Opportunities for Invesco SP and SPDR SP

0.61

Correlation Coefficient

Invesco SP  SPDR SP

Poor diversification

The 3 months correlation between Invesco and SPDR is 0.61. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP MidCap and SPDR SP Dividend in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Dividend 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 MidCap are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Dividend has no effect on the direction of Invesco SP i.e., Invesco SP and SPDR SP go up and down completely randomly.

Pair Corralation between Invesco SP and SPDR SP

Considering the 90-day investment horizon Invesco SP MidCap is expected to generate 1.85 times more return on investment than SPDR SP. However, Invesco SP is 1.85 times more volatile than SPDR SP Dividend. It trades about 0.19 of its potential returns per unit of risk. SPDR SP Dividend is currently generating about 0.02 per unit of risk. If you would invest  10,979  in Invesco SP MidCap on September 12, 2024 and sell it today you would earn a total of  1,419  from holding Invesco SP MidCap or generate 12.92% return on investment over 90 days.

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

Invesco SP MidCap  vs.  SPDR SP Dividend

Invesco SP MidCap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

SPDR SP Dividend

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Dividend are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, SPDR SP 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 SPDR SP

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

The idea behind Invesco SP MidCap and SPDR SP Dividend 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.