Correlation Between Vanguard Small and Invesco High

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

By analyzing existing cross correlation between Vanguard Small Cap Index and Invesco High Yield, you can compare the effects of market volatilities on Vanguard Small and Invesco High 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 Vanguard Small with a short position of Invesco High. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Invesco High.

Diversification Opportunities for Vanguard Small and Invesco High

0.75

Correlation Coefficient

Vanguard Small  Invesco High

Poor diversification

The 3 months correlation between Vanguard and Invesco is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Invesco High Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco High Yield and Vanguard Small 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 Vanguard Small Cap Index are associated (or correlated) with Invesco High. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco High Yield has no effect on the direction of Vanguard Small i.e., Vanguard Small and Invesco High go up and down completely randomly.

Pair Corralation between Vanguard Small and Invesco High

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to under-perform the Invesco High. In addition to that, Vanguard Small is 5.0 times more volatile than Invesco High Yield. It trades about -0.23 of its total potential returns per unit of risk. Invesco High Yield is currently generating about -0.12 per unit of volatility. If you would invest  2,268  in Invesco High Yield on October 10, 2024 and sell it today you would lose (13.00) from holding Invesco High Yield or give up 0.57% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  Invesco High Yield

Vanguard Small Cap

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Invesco High Yield

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco High Yield are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Invesco High is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with Vanguard Small and Invesco High

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

The idea behind Vanguard Small Cap Index and Invesco High Yield 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.