Correlation Between Swiss Leader and Invesco Treasury

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

By analyzing existing cross correlation between Swiss Leader Price and Invesco Treasury Bond, you can compare the effects of market volatilities on Swiss Leader and Invesco Treasury 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 Swiss Leader with a short position of Invesco Treasury. Check out your portfolio center. Please also check ongoing floating volatility patterns of Swiss Leader and Invesco Treasury.

Diversification Opportunities for Swiss Leader and Invesco Treasury

0.7

Correlation Coefficient

Swiss Leader  Invesco Treasury

Poor diversification

The 3 months correlation between Swiss and Invesco is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding Swiss Leader Price and Invesco Treasury Bond in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Treasury Bond and Swiss Leader 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 Swiss Leader Price are associated (or correlated) with Invesco Treasury. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Treasury Bond has no effect on the direction of Swiss Leader i.e., Swiss Leader and Invesco Treasury go up and down completely randomly.

Pair Corralation between Swiss Leader and Invesco Treasury

Assuming the 90 days trading horizon Swiss Leader Price is expected to generate 1.4 times more return on investment than Invesco Treasury. However, Swiss Leader is 1.4 times more volatile than Invesco Treasury Bond. It trades about -0.05 of its potential returns per unit of risk. Invesco Treasury Bond is currently generating about -0.17 per unit of risk. If you would invest  193,079  in Swiss Leader Price on September 29, 2024 and sell it today you would lose (1,379) from holding Swiss Leader Price or give up 0.71% of portfolio value over 90 days.

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

Swiss Leader Price  vs.  Invesco Treasury Bond

Pair Trading with Swiss Leader and Invesco Treasury

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

The idea behind Swiss Leader Price and Invesco Treasury Bond 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.

Check out your portfolio center.

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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.