Correlation Between SPDR SP and Invesco SP

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

By analyzing existing cross correlation between SPDR SP Oil and Invesco SP 500, you can compare the effects of market volatilities on SPDR SP and Invesco SP 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 SPDR SP with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Invesco SP.

Diversification Opportunities for SPDR SP and Invesco SP

0.86

Correlation Coefficient

SPDR SP  Invesco SP

Very poor diversification

The 3 months correlation between SPDR and Invesco is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Oil and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and SPDR 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 SPDR SP Oil are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP 500 has no effect on the direction of SPDR SP i.e., SPDR SP and Invesco SP go up and down completely randomly.

Pair Corralation between SPDR SP and Invesco SP

Considering the 90-day investment horizon SPDR SP is expected to generate 1.63 times less return on investment than Invesco SP. In addition to that, SPDR SP is 1.87 times more volatile than Invesco SP 500. It trades about 0.02 of its total potential returns per unit of risk. Invesco SP 500 is currently generating about 0.07 per unit of volatility. If you would invest  4,850  in Invesco SP 500 on September 3, 2024 and sell it today you would earn a total of  1,457  from holding Invesco SP 500 or generate 30.04% return on investment over 90 days.

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

SPDR SP Oil  vs.  Invesco SP 500

SPDR SP Oil

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Oil are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively inconsistent basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco SP 500

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of fairly fragile essential indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with SPDR SP and Invesco SP

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

The idea behind SPDR SP Oil and Invesco SP 500 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.