Correlation Between Invesco Municipal and WisdomTree

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

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

Diversification Opportunities for Invesco Municipal and WisdomTree

-0.33

Correlation Coefficient

Invesco Municipal  WisdomTree

Very good diversification

The 3 months correlation between Invesco and WisdomTree is -0.33. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Municipal Trust and WisdomTree in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree and Invesco Municipal 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 Invesco Municipal Trust are associated (or correlated) with WisdomTree. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree has no effect on the direction of Invesco Municipal i.e., Invesco Municipal and WisdomTree go up and down completely randomly.

Pair Corralation between Invesco Municipal and WisdomTree

Considering the 90-day investment horizon Invesco Municipal is expected to generate 5.95 times less return on investment than WisdomTree. But when comparing it to its historical volatility, Invesco Municipal Trust is 3.22 times less risky than WisdomTree. It trades about 0.1 of its potential returns per unit of risk. WisdomTree is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  971.00  in WisdomTree on September 3, 2024 and sell it today you would earn a total of  224.00  from holding WisdomTree or generate 23.07% return on investment over 90 days.

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

Invesco Municipal Trust  vs.  WisdomTree

Invesco Municipal Trust

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Municipal Trust are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable forward-looking signals, Invesco Municipal is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

WisdomTree

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent basic indicators, WisdomTree unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco Municipal and WisdomTree

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

The idea behind Invesco Municipal Trust and WisdomTree 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.

Check out your portfolio center.

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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.