Correlation Between Invesco Municipal and Invesco Income

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

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

Diversification Opportunities for Invesco Municipal and Invesco Income

0.72

Correlation Coefficient

Invesco Municipal  Invesco Income

Poor diversification

The 3 months correlation between Invesco and Invesco is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Municipal Income and Invesco Income Allocation in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Income Allocation 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 Income are associated (or correlated) with Invesco Income. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Income Allocation has no effect on the direction of Invesco Municipal i.e., Invesco Municipal and Invesco Income go up and down completely randomly.

Pair Corralation between Invesco Municipal and Invesco Income

Assuming the 90 days horizon Invesco Municipal Income is expected to under-perform the Invesco Income. But the mutual fund apears to be less risky and, when comparing its historical volatility, Invesco Municipal Income is 1.31 times less risky than Invesco Income. The mutual fund trades about -0.02 of its potential returns per unit of risk. The Invesco Income Allocation is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  1,072  in Invesco Income Allocation on November 29, 2024 and sell it today you would earn a total of  1.00  from holding Invesco Income Allocation or generate 0.09% return on investment over 90 days.

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

Invesco Municipal Income  vs.  Invesco Income Allocation

Invesco Municipal Income

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Municipal Income has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong forward indicators, Invesco Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco Income Allocation

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Income Allocation has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong basic indicators, Invesco Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco Municipal and Invesco Income

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

The idea behind Invesco Municipal Income and Invesco Income Allocation 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.