Correlation Between Invesco SP and RPAR Risk

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

Diversification Opportunities for Invesco SP and RPAR Risk

0.12

Correlation Coefficient

Invesco SP  RPAR Risk

Average diversification

The 3 months correlation between Invesco and RPAR is 0.12. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and RPAR Risk Parity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on RPAR Risk Parity 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 RPAR Risk. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of RPAR Risk Parity has no effect on the direction of Invesco SP i.e., Invesco SP and RPAR Risk go up and down completely randomly.

Pair Corralation between Invesco SP and RPAR Risk

Given the investment horizon of 90 days Invesco SP 500 is expected to under-perform the RPAR Risk. In addition to that, Invesco SP is 2.28 times more volatile than RPAR Risk Parity. It trades about -0.01 of its total potential returns per unit of risk. RPAR Risk Parity is currently generating about 0.12 per unit of volatility. If you would invest  1,871  in RPAR Risk Parity on December 28, 2024 and sell it today you would earn a total of  78.00  from holding RPAR Risk Parity or generate 4.17% return on investment over 90 days.

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

Invesco SP 500  vs.  RPAR Risk Parity

Invesco SP 500

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy primary indicators, Invesco SP is not utilizing all of its potentials. The newest stock price disarray, may contribute to short-term losses for the investors.

RPAR Risk Parity

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in RPAR Risk Parity are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, RPAR Risk is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Invesco SP and RPAR Risk

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

The idea behind Invesco SP 500 and RPAR Risk Parity 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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.