Correlation Between Vanguard FTSE and Invesco Agriculture

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

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

Diversification Opportunities for Vanguard FTSE and Invesco Agriculture

-0.56

Correlation Coefficient

Vanguard FTSE  Invesco Agriculture

Excellent diversification

The 3 months correlation between Vanguard and Invesco is -0.56. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard FTSE Emerging and Invesco Agriculture Commodity in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Agriculture and Vanguard FTSE 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 FTSE Emerging are associated (or correlated) with Invesco Agriculture. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Agriculture has no effect on the direction of Vanguard FTSE i.e., Vanguard FTSE and Invesco Agriculture go up and down completely randomly.

Pair Corralation between Vanguard FTSE and Invesco Agriculture

Considering the 90-day investment horizon Vanguard FTSE is expected to generate 3.2 times less return on investment than Invesco Agriculture. But when comparing it to its historical volatility, Vanguard FTSE Emerging is 1.02 times less risky than Invesco Agriculture. It trades about 0.03 of its potential returns per unit of risk. Invesco Agriculture Commodity is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  2,374  in Invesco Agriculture Commodity on October 4, 2024 and sell it today you would earn a total of  1,170  from holding Invesco Agriculture Commodity or generate 49.28% return on investment over 90 days.

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

Vanguard FTSE Emerging  vs.  Invesco Agriculture Commodity

Vanguard FTSE Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard FTSE Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest weak performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Invesco Agriculture

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Agriculture Commodity are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite somewhat conflicting fundamental drivers, Invesco Agriculture may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Vanguard FTSE and Invesco Agriculture

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

The idea behind Vanguard FTSE Emerging and Invesco Agriculture Commodity 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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.