Correlation Between SBF 120 and Invesco FTSE

Can any of the company-specific risk be diversified away by investing in both SBF 120 and Invesco FTSE 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 SBF 120 and Invesco FTSE into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between SBF 120 and Invesco FTSE RAFI, you can compare the effects of market volatilities on SBF 120 and Invesco FTSE 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 SBF 120 with a short position of Invesco FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of SBF 120 and Invesco FTSE.

Diversification Opportunities for SBF 120 and Invesco FTSE

-0.68

Correlation Coefficient

SBF 120  Invesco FTSE

Excellent diversification

The 3 months correlation between SBF and Invesco is -0.68. Overlapping area represents the amount of risk that can be diversified away by holding SBF 120 and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI and SBF 120 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 SBF 120 are associated (or correlated) with Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of SBF 120 i.e., SBF 120 and Invesco FTSE go up and down completely randomly.

Pair Corralation between SBF 120 and Invesco FTSE

Assuming the 90 days trading horizon SBF 120 is expected to generate 1.01 times more return on investment than Invesco FTSE. However, SBF 120 is 1.01 times more volatile than Invesco FTSE RAFI. It trades about 0.08 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about -0.2 per unit of risk. If you would invest  545,797  in SBF 120 on September 27, 2024 and sell it today you would earn a total of  5,767  from holding SBF 120 or generate 1.06% return on investment over 90 days.

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

SBF 120  vs.  Invesco FTSE RAFI

Pair Trading with SBF 120 and Invesco FTSE

The main advantage of trading using opposite SBF 120 and Invesco FTSE positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SBF 120 position performs unexpectedly, Invesco FTSE 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 FTSE will offset losses from the drop in Invesco FTSE's long position.

The idea behind SBF 120 and Invesco FTSE RAFI 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.