Correlation Between Consumer Staples and Invesco SP

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

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

Diversification Opportunities for Consumer Staples and Invesco SP

0.52

Correlation Coefficient

Consumer Staples  Invesco SP

Very weak diversification

The 3 months correlation between Consumer and Invesco is 0.52. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Staples Select and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and Consumer Staples 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 Consumer Staples Select are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of Consumer Staples i.e., Consumer Staples and Invesco SP go up and down completely randomly.

Pair Corralation between Consumer Staples and Invesco SP

Considering the 90-day investment horizon Consumer Staples Select is expected to generate 0.19 times more return on investment than Invesco SP. However, Consumer Staples Select is 5.2 times less risky than Invesco SP. It trades about 0.1 of its potential returns per unit of risk. Invesco SP 500 is currently generating about -0.03 per unit of risk. If you would invest  6,647  in Consumer Staples Select on October 1, 2024 and sell it today you would earn a total of  1,283  from holding Consumer Staples Select or generate 19.3% return on investment over 90 days.

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

Consumer Staples Select  vs.  Invesco SP 500

Consumer Staples Select

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Consumer Staples Select has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable essential indicators, Consumer Staples is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Invesco SP 500

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP 500 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Etf's fundamental indicators remain rather sound which may send shares a bit higher in January 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Pair Trading with Consumer Staples and Invesco SP

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

The idea behind Consumer Staples Select and Invesco SP 500 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.