Correlation Between Vanguard European and Invesco Convertible

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

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

Diversification Opportunities for Vanguard European and Invesco Convertible

-0.04

Correlation Coefficient

Vanguard European  Invesco Convertible

Good diversification

The 3 months correlation between Vanguard and Invesco is -0.04. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard European Stock and Invesco Vertible Securities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Vertible Sec and Vanguard European 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 European Stock are associated (or correlated) with Invesco Convertible. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Vertible Sec has no effect on the direction of Vanguard European i.e., Vanguard European and Invesco Convertible go up and down completely randomly.

Pair Corralation between Vanguard European and Invesco Convertible

Assuming the 90 days horizon Vanguard European Stock is expected to under-perform the Invesco Convertible. But the mutual fund apears to be less risky and, when comparing its historical volatility, Vanguard European Stock is 1.04 times less risky than Invesco Convertible. The mutual fund trades about -0.35 of its potential returns per unit of risk. The Invesco Vertible Securities is currently generating about -0.26 of returns per unit of risk over similar time horizon. If you would invest  2,518  in Invesco Vertible Securities on October 10, 2024 and sell it today you would lose (112.00) from holding Invesco Vertible Securities or give up 4.45% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	95.24%
Values	Daily Returns

Vanguard European Stock  vs.  Invesco Vertible Securities

Vanguard European Stock

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard European Stock has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Invesco Vertible Sec

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Vertible Securities are ranked lower than 2 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong technical and fundamental indicators, Invesco Convertible is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Vanguard European and Invesco Convertible

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

The idea behind Vanguard European Stock and Invesco Vertible Securities 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.