Correlation Between Vanguard and Invesco FTSE

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

By analyzing existing cross correlation between Vanguard SP 500 and Invesco FTSE RAFI, you can compare the effects of market volatilities on Vanguard and Invesco FTSE 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 with a short position of Invesco FTSE. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Invesco FTSE.

Diversification Opportunities for Vanguard and Invesco FTSE

-0.02

Correlation Coefficient

Vanguard  Invesco FTSE

Good diversification

The 3 months correlation between Vanguard and Invesco is -0.02. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI and Vanguard 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 SP 500 are associated (or correlated) with Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of Vanguard i.e., Vanguard and Invesco FTSE go up and down completely randomly.

Pair Corralation between Vanguard and Invesco FTSE

Assuming the 90 days trading horizon Vanguard SP 500 is expected to generate 0.42 times more return on investment than Invesco FTSE. However, Vanguard SP 500 is 2.39 times less risky than Invesco FTSE. It trades about 0.1 of its potential returns per unit of risk. Invesco FTSE RAFI is currently generating about 0.04 per unit of risk. If you would invest  6,723  in Vanguard SP 500 on September 29, 2024 and sell it today you would earn a total of  3,465  from holding Vanguard SP 500 or generate 51.54% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	70.56%
Values	Daily Returns

Vanguard SP 500  vs.  Invesco FTSE RAFI

Vanguard SP 500

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak basic indicators, Vanguard may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco FTSE RAFI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco FTSE RAFI has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Invesco FTSE is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Vanguard and Invesco FTSE

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

The idea behind Vanguard SP 500 and Invesco FTSE RAFI 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..