Correlation Between Invesco California and GAMCO Natural

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

By analyzing existing cross correlation between Invesco California Value and GAMCO Natural Resources, you can compare the effects of market volatilities on Invesco California and GAMCO Natural 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 California with a short position of GAMCO Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco California and GAMCO Natural.

Diversification Opportunities for Invesco California and GAMCO Natural

0.22

Correlation Coefficient

Invesco California  GAMCO Natural

Modest diversification

The 3 months correlation between Invesco and GAMCO is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Invesco California Value and GAMCO Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on GAMCO Natural Resources and Invesco California 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 California Value are associated (or correlated) with GAMCO Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of GAMCO Natural Resources has no effect on the direction of Invesco California i.e., Invesco California and GAMCO Natural go up and down completely randomly.

Pair Corralation between Invesco California and GAMCO Natural

Considering the 90-day investment horizon Invesco California Value is expected to generate 0.73 times more return on investment than GAMCO Natural. However, Invesco California Value is 1.37 times less risky than GAMCO Natural. It trades about 0.16 of its potential returns per unit of risk. GAMCO Natural Resources is currently generating about 0.02 per unit of risk. If you would invest  1,037  in Invesco California Value on November 29, 2024 and sell it today you would earn a total of  74.00  from holding Invesco California Value or generate 7.14% return on investment over 90 days.

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

Invesco California Value  vs.  GAMCO Natural Resources

Invesco California Value

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco California Value are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady fundamental indicators, Invesco California may actually be approaching a critical reversion point that can send shares even higher in March 2025.

GAMCO Natural Resources

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in GAMCO Natural Resources are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, GAMCO Natural is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Invesco California and GAMCO Natural

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

The idea behind Invesco California Value and GAMCO Natural Resources 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.