Correlation Between Materials Select and Invesco Global

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

By analyzing existing cross correlation between Materials Select Sector and Invesco Global Water, you can compare the effects of market volatilities on Materials Select and Invesco Global 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 Materials Select with a short position of Invesco Global. Check out your portfolio center. Please also check ongoing floating volatility patterns of Materials Select and Invesco Global.

Diversification Opportunities for Materials Select and Invesco Global

0.93

Correlation Coefficient

Materials Select  Invesco Global

Almost no diversification

The 3 months correlation between Materials and Invesco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and Invesco Global Water in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Global Water and Materials Select 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 Materials Select Sector are associated (or correlated) with Invesco Global. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Global Water has no effect on the direction of Materials Select i.e., Materials Select and Invesco Global go up and down completely randomly.

Pair Corralation between Materials Select and Invesco Global

Considering the 90-day investment horizon Materials Select Sector is expected to under-perform the Invesco Global. In addition to that, Materials Select is 1.18 times more volatile than Invesco Global Water. It trades about -0.01 of its total potential returns per unit of risk. Invesco Global Water is currently generating about 0.03 per unit of volatility. If you would invest  4,007  in Invesco Global Water on December 5, 2024 and sell it today you would earn a total of  99.00  from holding Invesco Global Water or generate 2.47% return on investment over 90 days.

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

Materials Select Sector  vs.  Invesco Global Water

Materials Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Materials Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Invesco Global Water

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Global Water has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy forward indicators, Invesco Global is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Materials Select and Invesco Global

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

The idea behind Materials Select Sector and Invesco Global Water 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.