Correlation Between Invesco Senior and Total Market

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

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

Diversification Opportunities for Invesco Senior and Total Market

0.55

Correlation Coefficient

Invesco Senior  Total Market

Very weak diversification

The 3 months correlation between Invesco and Total is 0.55. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Senior Loan and Total Market Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Total Market Portfolio and Invesco Senior 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 Senior Loan are associated (or correlated) with Total Market. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Total Market Portfolio has no effect on the direction of Invesco Senior i.e., Invesco Senior and Total Market go up and down completely randomly.

Pair Corralation between Invesco Senior and Total Market

Assuming the 90 days horizon Invesco Senior Loan is expected to under-perform the Total Market. But the mutual fund apears to be less risky and, when comparing its historical volatility, Invesco Senior Loan is 5.05 times less risky than Total Market. The mutual fund trades about -0.09 of its potential returns per unit of risk. The Total Market Portfolio is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  1,821  in Total Market Portfolio on December 29, 2024 and sell it today you would lose (14.00) from holding Total Market Portfolio or give up 0.77% of portfolio value over 90 days.

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

Invesco Senior Loan  vs.  Total Market Portfolio

Invesco Senior Loan

Risk-Adjusted Performance

Very Weak

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

Total Market Portfolio

Risk-Adjusted Performance

Very Weak

Over the last 90 days Total Market Portfolio has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong primary indicators, Total Market 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 Senior and Total Market

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

The idea behind Invesco Senior Loan and Total Market Portfolio 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 Transaction History module to view history of all your transactions and understand their impact on performance.