Correlation Between Invesco SP and Vanguard Momentum

Can any of the company-specific risk be diversified away by investing in both Invesco SP and Vanguard Momentum 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 Vanguard Momentum 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 Vanguard Momentum Factor, you can compare the effects of market volatilities on Invesco SP and Vanguard Momentum 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 Vanguard Momentum. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and Vanguard Momentum.

Diversification Opportunities for Invesco SP and Vanguard Momentum

0.99

Correlation Coefficient

Invesco SP  Vanguard Momentum

No risk reduction

The 3 months correlation between Invesco and Vanguard is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP MidCap and Vanguard Momentum Factor in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Momentum Factor 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 Vanguard Momentum. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Momentum Factor has no effect on the direction of Invesco SP i.e., Invesco SP and Vanguard Momentum go up and down completely randomly.

Pair Corralation between Invesco SP and Vanguard Momentum

Given the investment horizon of 90 days Invesco SP MidCap is expected to generate 1.05 times more return on investment than Vanguard Momentum. However, Invesco SP is 1.05 times more volatile than Vanguard Momentum Factor. It trades about 0.2 of its potential returns per unit of risk. Vanguard Momentum Factor is currently generating about 0.17 per unit of risk. If you would invest  11,651  in Invesco SP MidCap on September 13, 2024 and sell it today you would earn a total of  1,562  from holding Invesco SP MidCap or generate 13.41% return on investment over 90 days.

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

Invesco SP MidCap  vs.  Vanguard Momentum Factor

Invesco SP MidCap

Risk-Adjusted Performance

15 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 15 (%) of all global equities and portfolios over the last 90 days. In spite of very unfluctuating primary indicators, Invesco SP displayed solid returns over the last few months and may actually be approaching a breakup point.

Vanguard Momentum Factor

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Momentum Factor are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very weak primary indicators, Vanguard Momentum may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco SP and Vanguard Momentum

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

The idea behind Invesco SP MidCap and Vanguard Momentum Factor 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.