Correlation Between Vanguard Value and Invesco SP

Can any of the company-specific risk be diversified away by investing in both Vanguard Value 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 Value 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 Value Factor and Invesco SP MidCap, you can compare the effects of market volatilities on Vanguard Value 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 Value with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Value and Invesco SP.

Diversification Opportunities for Vanguard Value and Invesco SP

0.98

Correlation Coefficient

Vanguard Value  Invesco SP

Almost no diversification

The 3 months correlation between Vanguard and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value Factor and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap and Vanguard Value 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 Value Factor 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 MidCap has no effect on the direction of Vanguard Value i.e., Vanguard Value and Invesco SP go up and down completely randomly.

Pair Corralation between Vanguard Value and Invesco SP

Given the investment horizon of 90 days Vanguard Value is expected to generate 1.1 times less return on investment than Invesco SP. But when comparing it to its historical volatility, Vanguard Value Factor is 1.11 times less risky than Invesco SP. It trades about 0.1 of its potential returns per unit of risk. Invesco SP MidCap is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest  11,260  in Invesco SP MidCap on September 12, 2024 and sell it today you would earn a total of  1,821  from holding Invesco SP MidCap or generate 16.17% return on investment over 90 days.

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

Vanguard Value Factor  vs.  Invesco SP MidCap

Vanguard Value Factor

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Factor are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Vanguard Value may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco SP MidCap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Invesco SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Value and Invesco SP

The main advantage of trading using opposite Vanguard Value and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value 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 Value Factor and Invesco SP MidCap 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.