Correlation Between Invesco SP and SPDR Russell

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

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

Diversification Opportunities for Invesco SP and SPDR Russell

0.94

Correlation Coefficient

Invesco SP  SPDR Russell

Almost no diversification

The 3 months correlation between Invesco and SPDR is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP MidCap and SPDR Russell Small in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Russell Small and Invesco SP 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 Invesco SP MidCap are associated (or correlated) with SPDR Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Russell Small has no effect on the direction of Invesco SP i.e., Invesco SP and SPDR Russell go up and down completely randomly.

Pair Corralation between Invesco SP and SPDR Russell

Given the investment horizon of 90 days Invesco SP MidCap is expected to under-perform the SPDR Russell. In addition to that, Invesco SP is 1.3 times more volatile than SPDR Russell Small. It trades about -0.08 of its total potential returns per unit of risk. SPDR Russell Small is currently generating about -0.07 per unit of volatility. If you would invest  5,478  in SPDR Russell Small on December 27, 2024 and sell it today you would lose (278.00) from holding SPDR Russell Small or give up 5.07% of portfolio value over 90 days.

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

Invesco SP MidCap  vs.  SPDR Russell Small

Invesco SP MidCap

Risk-Adjusted Performance

Very Weak

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

SPDR Russell Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR Russell Small has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound primary indicators, SPDR Russell is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco SP and SPDR Russell

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

The idea behind Invesco SP MidCap and SPDR Russell Small 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.