Correlation Between Vanguard Value and Invesco SP

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

Diversification Opportunities for Vanguard Value and Invesco SP

0.88

Correlation Coefficient

Vanguard Value  Invesco SP

Very poor diversification

The 3 months correlation between Vanguard and Invesco is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Value 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 Value 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 Value 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 Value i.e., Vanguard Value and Invesco SP go up and down completely randomly.

Pair Corralation between Vanguard Value and Invesco SP

Considering the 90-day investment horizon Vanguard Value Index is expected to under-perform the Invesco SP. But the etf apears to be less risky and, when comparing its historical volatility, Vanguard Value Index is 1.76 times less risky than Invesco SP. The etf trades about -0.09 of its potential returns per unit of risk. The Invesco SP SmallCap is currently generating about -0.02 of returns per unit of risk over similar time horizon. If you would invest  4,584  in Invesco SP SmallCap on September 15, 2024 and sell it today you would lose (20.00) from holding Invesco SP SmallCap or give up 0.44% of portfolio value over 90 days.

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

Vanguard Value Index  vs.  Invesco SP SmallCap

Vanguard Value Index

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Value Index are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Vanguard Value is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Invesco SP SmallCap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady technical indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Vanguard Value and Invesco SP

The main advantage of trading using opposite Vanguard Value and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Value 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 Value 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.

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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 Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.