Correlation Between Technology Select and Invesco NASDAQ

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

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

Diversification Opportunities for Technology Select and Invesco NASDAQ

0.87

Correlation Coefficient

Technology Select  Invesco NASDAQ

Very poor diversification

The 3 months correlation between Technology and Invesco is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Invesco NASDAQ Internet in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ Internet and Technology 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 Technology Select Sector are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ Internet has no effect on the direction of Technology Select i.e., Technology Select and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between Technology Select and Invesco NASDAQ

Considering the 90-day investment horizon Technology Select is expected to generate 1.06 times less return on investment than Invesco NASDAQ. In addition to that, Technology Select is 1.02 times more volatile than Invesco NASDAQ Internet. It trades about 0.11 of its total potential returns per unit of risk. Invesco NASDAQ Internet is currently generating about 0.12 per unit of volatility. If you would invest  2,377  in Invesco NASDAQ Internet on September 28, 2024 and sell it today you would earn a total of  2,376  from holding Invesco NASDAQ Internet or generate 99.96% return on investment over 90 days.

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

Technology Select Sector  vs.  Invesco NASDAQ Internet

Technology Select Sector

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Technology Select Sector are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Invesco NASDAQ Internet

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco NASDAQ Internet are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite fairly conflicting basic indicators, Invesco NASDAQ may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Technology Select and Invesco NASDAQ

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

The idea behind Technology Select Sector and Invesco NASDAQ Internet 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.