Correlation Between Invesco California and Foreign Trade

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

By analyzing existing cross correlation between Invesco California Value and Foreign Trade Bank, you can compare the effects of market volatilities on Invesco California and Foreign Trade 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 California with a short position of Foreign Trade. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco California and Foreign Trade.

Diversification Opportunities for Invesco California and Foreign Trade

0.27

Correlation Coefficient

Invesco California  Foreign Trade

Modest diversification

The 3 months correlation between Invesco and Foreign is 0.27. Overlapping area represents the amount of risk that can be diversified away by holding Invesco California Value and Foreign Trade Bank in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Foreign Trade Bank and Invesco California 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 California Value are associated (or correlated) with Foreign Trade. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Foreign Trade Bank has no effect on the direction of Invesco California i.e., Invesco California and Foreign Trade go up and down completely randomly.

Pair Corralation between Invesco California and Foreign Trade

Considering the 90-day investment horizon Invesco California Value is expected to under-perform the Foreign Trade. But the stock apears to be less risky and, when comparing its historical volatility, Invesco California Value is 3.05 times less risky than Foreign Trade. The stock trades about -0.29 of its potential returns per unit of risk. The Foreign Trade Bank is currently generating about -0.01 of returns per unit of risk over similar time horizon. If you would invest  2,922  in Foreign Trade Bank on February 2, 2024 and sell it today you would lose (10.00) from holding Foreign Trade Bank or give up 0.34% of portfolio value over 90 days.

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

Invesco California Value  vs.  Foreign Trade Bank

Invesco California Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco California Value has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable fundamental indicators, Invesco California is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Foreign Trade Bank

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Foreign Trade Bank are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, Foreign Trade showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco California and Foreign Trade

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

The idea behind Invesco California Value and Foreign Trade Bank 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 Theme Ratings module to determine theme ratings based on digital equity recommendations. Macroaxis theme ratings are based on combination of fundamental analysis and risk-adjusted market performance.