Correlation Between Schwab International and Invesco Aerospace

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

By analyzing existing cross correlation between Schwab International Equity and Invesco Aerospace Defense, you can compare the effects of market volatilities on Schwab International and Invesco Aerospace 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 Schwab International with a short position of Invesco Aerospace. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab International and Invesco Aerospace.

Diversification Opportunities for Schwab International and Invesco Aerospace

0.8

Correlation Coefficient

Schwab International  Invesco Aerospace

Very poor diversification

The 3 months correlation between Schwab and Invesco is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Schwab International Equity and Invesco Aerospace Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Aerospace Defense and Schwab International 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 Schwab International Equity are associated (or correlated) with Invesco Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Aerospace Defense has no effect on the direction of Schwab International i.e., Schwab International and Invesco Aerospace go up and down completely randomly.

Pair Corralation between Schwab International and Invesco Aerospace

Given the investment horizon of 90 days Schwab International Equity is expected to under-perform the Invesco Aerospace. In addition to that, Schwab International is 1.05 times more volatile than Invesco Aerospace Defense. It trades about -0.16 of its total potential returns per unit of risk. Invesco Aerospace Defense is currently generating about 0.02 per unit of volatility. If you would invest  10,060  in Invesco Aerospace Defense on January 29, 2024 and sell it today you would earn a total of  31.00  from holding Invesco Aerospace Defense or generate 0.31% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Schwab International Equity  vs.  Invesco Aerospace Defense

Schwab International

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab International Equity are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable technical indicators, Schwab International is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco Aerospace Defense

Risk-Adjusted Performance

19 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Aerospace Defense are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Invesco Aerospace may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Schwab International and Invesco Aerospace

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

The idea behind Schwab International Equity and Invesco Aerospace Defense 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.