Correlation Between Vanguard Utilities and Invesco SP

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

Diversification Opportunities for Vanguard Utilities and Invesco SP

0.13

Correlation Coefficient

Vanguard Utilities  Invesco SP

Average diversification

The 3 months correlation between Vanguard and Invesco is 0.13. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Utilities Index and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap and Vanguard Utilities 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 Utilities Index 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 SmallCap has no effect on the direction of Vanguard Utilities i.e., Vanguard Utilities and Invesco SP go up and down completely randomly.

Pair Corralation between Vanguard Utilities and Invesco SP

Considering the 90-day investment horizon Vanguard Utilities Index is expected to generate 1.08 times more return on investment than Invesco SP. However, Vanguard Utilities is 1.08 times more volatile than Invesco SP SmallCap. It trades about 0.07 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about -0.08 per unit of risk. If you would invest  16,241  in Vanguard Utilities Index on December 29, 2024 and sell it today you would earn a total of  662.00  from holding Vanguard Utilities Index or generate 4.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Vanguard Utilities Index  vs.  Invesco SP SmallCap

Vanguard Utilities Index

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Utilities Index are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Vanguard Utilities is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco SP SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco SP SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Invesco SP is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Vanguard Utilities and Invesco SP

The main advantage of trading using opposite Vanguard Utilities and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Utilities 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 Utilities Index and Invesco SP SmallCap 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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.