Correlation Between Vanguard and Invesco EURO

Can any of the company-specific risk be diversified away by investing in both Vanguard and Invesco EURO 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 EURO 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 EURO STOXX, you can compare the effects of market volatilities on Vanguard and Invesco EURO 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 EURO. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard and Invesco EURO.

Diversification Opportunities for Vanguard and Invesco EURO

-0.38

Correlation Coefficient

Vanguard  Invesco EURO

Very good diversification

The 3 months correlation between Vanguard and Invesco is -0.38. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard SP 500 and Invesco EURO STOXX in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco EURO STOXX 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 EURO. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco EURO STOXX has no effect on the direction of Vanguard i.e., Vanguard and Invesco EURO go up and down completely randomly.

Pair Corralation between Vanguard and Invesco EURO

Assuming the 90 days trading horizon Vanguard is expected to generate 4.11 times less return on investment than Invesco EURO. But when comparing it to its historical volatility, Vanguard SP 500 is 1.29 times less risky than Invesco EURO. It trades about 0.07 of its potential returns per unit of risk. Invesco EURO STOXX is currently generating about 0.21 of returns per unit of risk over similar time horizon. If you would invest  11,782  in Invesco EURO STOXX on September 28, 2024 and sell it today you would earn a total of  370.00  from holding Invesco EURO STOXX or generate 3.14% return on investment over 90 days.

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

Vanguard SP 500  vs.  Invesco EURO STOXX

Vanguard SP 500

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard SP 500 are ranked lower than 15 (%) 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 EURO STOXX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco EURO STOXX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Invesco EURO 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 EURO

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

The idea behind Vanguard SP 500 and Invesco EURO STOXX 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.