Correlation Between SPDR Portfolio and Invesco SP

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

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

Diversification Opportunities for SPDR Portfolio and Invesco SP

0.89

Correlation Coefficient

SPDR Portfolio  Invesco SP

Very poor diversification

The 3 months correlation between SPDR and Invesco is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding SPDR Portfolio SP and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap and SPDR Portfolio 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 SPDR Portfolio SP are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP MidCap has no effect on the direction of SPDR Portfolio i.e., SPDR Portfolio and Invesco SP go up and down completely randomly.

Pair Corralation between SPDR Portfolio and Invesco SP

Given the investment horizon of 90 days SPDR Portfolio is expected to generate 4.16 times less return on investment than Invesco SP. But when comparing it to its historical volatility, SPDR Portfolio SP is 1.6 times less risky than Invesco SP. It trades about 0.07 of its potential returns per unit of risk. Invesco SP MidCap is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,979  in Invesco SP MidCap on September 12, 2024 and sell it today you would earn a total of  1,352  from holding Invesco SP MidCap or generate 12.31% return on investment over 90 days.

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

SPDR Portfolio SP  vs.  Invesco SP MidCap

SPDR Portfolio SP

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio SP are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound basic indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco SP MidCap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 14 (%) 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.

Pair Trading with SPDR Portfolio and Invesco SP

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

The idea behind SPDR Portfolio SP and Invesco SP MidCap 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 Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.