Correlation Between Invesco SP and Vanguard Financials

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

Diversification Opportunities for Invesco SP and Vanguard Financials

0.64

Correlation Coefficient

Invesco SP  Vanguard Financials

Poor diversification

The 3 months correlation between Invesco and Vanguard is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP SmallCap and Vanguard Financials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Financials Index 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 Vanguard Financials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Financials Index has no effect on the direction of Invesco SP i.e., Invesco SP and Vanguard Financials go up and down completely randomly.

Pair Corralation between Invesco SP and Vanguard Financials

Given the investment horizon of 90 days Invesco SP SmallCap is expected to under-perform the Vanguard Financials. In addition to that, Invesco SP is 1.24 times more volatile than Vanguard Financials Index. It trades about -0.01 of its total potential returns per unit of risk. Vanguard Financials Index is currently generating about 0.03 per unit of volatility. If you would invest  9,755  in Vanguard Financials Index on February 29, 2024 and sell it today you would earn a total of  148.00  from holding Vanguard Financials Index or generate 1.52% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	96.88%
Values	Daily Returns

Invesco SP SmallCap  vs.  Vanguard Financials Index

Invesco SP SmallCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Invesco SP is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Vanguard Financials Index

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Financials Index are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong technical and fundamental indicators, Vanguard Financials is not utilizing all of its potentials. The newest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Invesco SP and Vanguard Financials

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

The idea behind Invesco SP SmallCap and Vanguard Financials Index 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.