Correlation Between Vanguard Index and Invesco QQQ

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

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

Diversification Opportunities for Vanguard Index and Invesco QQQ

0.98

Correlation Coefficient

Vanguard Index  Invesco QQQ

Almost no diversification

The 3 months correlation between Vanguard and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Index Funds and Invesco QQQ Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco QQQ Trust and Vanguard Index 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 Index Funds are associated (or correlated) with Invesco QQQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco QQQ Trust has no effect on the direction of Vanguard Index i.e., Vanguard Index and Invesco QQQ go up and down completely randomly.

Pair Corralation between Vanguard Index and Invesco QQQ

Assuming the 90 days trading horizon Vanguard Index Funds is expected to under-perform the Invesco QQQ. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Index Funds is 1.01 times less risky than Invesco QQQ. The etf trades about -0.03 of its potential returns per unit of risk. The Invesco QQQ Trust is currently generating about 0.04 of returns per unit of risk over similar time horizon. If you would invest  1,055,500  in Invesco QQQ Trust on September 13, 2024 and sell it today you would earn a total of  9,999  from holding Invesco QQQ Trust or generate 0.95% return on investment over 90 days.

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

Vanguard Index Funds  vs.  Invesco QQQ Trust

Vanguard Index Funds

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Index Funds are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating forward indicators, Vanguard Index showed solid returns over the last few months and may actually be approaching a breakup point.

Invesco QQQ Trust

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco QQQ Trust are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Invesco QQQ showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Vanguard Index and Invesco QQQ

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

The idea behind Vanguard Index Funds and Invesco QQQ Trust 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 Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.