Correlation Between SP Funds and Invesco International
Can any of the company-specific risk be diversified away by investing in both SP Funds and Invesco International 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 SP Funds and Invesco International into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SP Funds Dow and Invesco International Corporate, you can compare the effects of market volatilities on SP Funds and Invesco International 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 SP Funds with a short position of Invesco International. Check out your portfolio center. Please also check ongoing floating volatility patterns of SP Funds and Invesco International.
Diversification Opportunities for SP Funds and Invesco International
0.92 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SPSK and Invesco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding SP Funds Dow and Invesco International Corporat in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco International and SP Funds 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 SP Funds Dow are associated (or correlated) with Invesco International. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco International has no effect on the direction of SP Funds i.e., SP Funds and Invesco International go up and down completely randomly.
Pair Corralation between SP Funds and Invesco International
Given the investment horizon of 90 days SP Funds is expected to generate 1.48 times less return on investment than Invesco International. But when comparing it to its historical volatility, SP Funds Dow is 1.43 times less risky than Invesco International. It trades about 0.1 of its potential returns per unit of risk. Invesco International Corporate is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 2,149 in Invesco International Corporate on December 27, 2024 and sell it today you would earn a total of 64.00 from holding Invesco International Corporate or generate 2.98% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 98.36% |
| Values | Daily Returns |
SP Funds Dow vs. Invesco International Corporat
Performance |
| Timeline |
| SP Funds Dow |
| Invesco International |
SP Funds and Invesco International Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SP Funds and Invesco International
The main advantage of trading using opposite SP Funds and Invesco International positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SP Funds position performs unexpectedly, Invesco International 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 International will offset losses from the drop in Invesco International's long position.The effect of pair diversification on risk is to reduce it, but we should note this doesn't apply to all risk types. When we trade pairs against SP Funds as a counterpart, there is always some inherent risk that will never be diversified away no matter what. This volatility limits the effect of tactical diversification using pair trading. SP Funds' systematic risk is the inherent uncertainty of the entire market, and therefore cannot be mitigated even by pair-trading it against the equity that is not highly correlated to it. On the other hand, SP Funds' unsystematic risk describes the types of risk that we can protect against, at least to some degree, by selecting a matching pair that is not perfectly correlated to SP Funds Dow.
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 CEOs Directory module to screen CEOs from public companies around the world.
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