Correlation Between Invesco SP and Invesco Exchange

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

By analyzing existing cross correlation between Invesco SP SmallCap and Invesco Exchange Traded, you can compare the effects of market volatilities on Invesco SP and Invesco Exchange 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 Invesco Exchange. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and Invesco Exchange.

Diversification Opportunities for Invesco SP and Invesco Exchange

0.22

Correlation Coefficient

Invesco SP  Invesco Exchange

Modest diversification

The 3 months correlation between Invesco and Invesco is 0.22. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP SmallCap and Invesco Exchange Traded in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Exchange Traded 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 SmallCap are associated (or correlated) with Invesco Exchange. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Exchange Traded has no effect on the direction of Invesco SP i.e., Invesco SP and Invesco Exchange go up and down completely randomly.

Pair Corralation between Invesco SP and Invesco Exchange

Given the investment horizon of 90 days Invesco SP SmallCap is expected to under-perform the Invesco Exchange. In addition to that, Invesco SP is 1.53 times more volatile than Invesco Exchange Traded. It trades about -0.32 of its total potential returns per unit of risk. Invesco Exchange Traded is currently generating about -0.09 per unit of volatility. If you would invest  3,539  in Invesco Exchange Traded on December 4, 2024 and sell it today you would lose (55.40) from holding Invesco Exchange Traded or give up 1.57% of portfolio value over 90 days.

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

Invesco SP SmallCap  vs.  Invesco Exchange Traded

Invesco SP SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco SP SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. Even with unsteady performance in the last few months, the Etf's technical indicators remain relatively invariable which may send shares a bit higher in April 2025. The latest agitation may also be a sign of long-running up-swing for the ETF retail investors.

Invesco Exchange Traded

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Exchange Traded has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent primary indicators, Invesco Exchange is not utilizing all of its potentials. The recent stock price mess, may contribute to short-term losses for the institutional investors.

Pair Trading with Invesco SP and Invesco Exchange

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

The idea behind Invesco SP SmallCap and Invesco Exchange Traded 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..