Correlation Between Vanguard and Invesco SP

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

Diversification Opportunities for Vanguard and Invesco SP

0.94

Correlation Coefficient

Vanguard  Invesco SP

Almost no diversification

The 3 months correlation between Vanguard and Invesco is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP Small Cap 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 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 SP Small Cap 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 i.e., Vanguard and Invesco SP go up and down completely randomly.

Pair Corralation between Vanguard and Invesco SP

Given the investment horizon of 90 days Vanguard is expected to generate 2.87 times less return on investment than Invesco SP. But when comparing it to its historical volatility, Vanguard SP Small Cap is 1.02 times less risky than Invesco SP. It trades about 0.07 of its potential returns per unit of risk. Invesco SP MidCap is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  10,216  in Invesco SP MidCap on September 16, 2024 and sell it today you would earn a total of  377.00  from holding Invesco SP MidCap or generate 3.69% return on investment over 90 days.

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

Vanguard SP Small Cap  vs.  Invesco SP MidCap

Vanguard SP Small

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP Small Cap are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Vanguard is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco SP MidCap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, Invesco SP is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Vanguard and Invesco SP

The main advantage of trading using opposite Vanguard and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 SP Small Cap 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 Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.