Correlation Between Vanguard Multifactor and Invesco Zacks

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

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

Diversification Opportunities for Vanguard Multifactor and Invesco Zacks

0.89

Correlation Coefficient

Vanguard Multifactor  Invesco Zacks

Very poor diversification

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

Pair Corralation between Vanguard Multifactor and Invesco Zacks

Given the investment horizon of 90 days Vanguard Multifactor is expected to under-perform the Invesco Zacks. In addition to that, Vanguard Multifactor is 1.25 times more volatile than Invesco Zacks Mid Cap. It trades about -0.08 of its total potential returns per unit of risk. Invesco Zacks Mid Cap is currently generating about -0.03 per unit of volatility. If you would invest  10,673  in Invesco Zacks Mid Cap on December 4, 2024 and sell it today you would lose (45.00) from holding Invesco Zacks Mid Cap or give up 0.42% of portfolio value over 90 days.

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

Vanguard Multifactor  vs.  Invesco Zacks Mid Cap

Vanguard Multifactor

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Multifactor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable primary indicators, Vanguard Multifactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco Zacks Mid

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Zacks Mid Cap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Invesco Zacks 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 Multifactor and Invesco Zacks

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

The idea behind Vanguard Multifactor and Invesco Zacks Mid Cap 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.