Correlation Between Vanguard Energy and Invesco SP

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

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

Diversification Opportunities for Vanguard Energy and Invesco SP

0.83

Correlation Coefficient

Vanguard Energy  Invesco SP

Very poor diversification

The 3 months correlation between Vanguard and Invesco is 0.83. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Index and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap and Vanguard Energy 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 Energy Index 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 SmallCap has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Invesco SP go up and down completely randomly.

Pair Corralation between Vanguard Energy and Invesco SP

Considering the 90-day investment horizon Vanguard Energy Index is expected to generate 0.62 times more return on investment than Invesco SP. However, Vanguard Energy Index is 1.61 times less risky than Invesco SP. It trades about 0.07 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.04 per unit of risk. If you would invest  11,978  in Vanguard Energy Index on September 15, 2024 and sell it today you would earn a total of  591.00  from holding Vanguard Energy Index or generate 4.93% return on investment over 90 days.

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

Vanguard Energy Index  vs.  Invesco SP SmallCap

Vanguard Energy Index

Risk-Adjusted Performance

5 of 100

Modest

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

Invesco SP SmallCap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Invesco SP is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Vanguard Energy and Invesco SP

The main advantage of trading using opposite Vanguard Energy and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Energy 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 Vanguard Energy Index and Invesco SP SmallCap 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.