Correlation Between Invesco Global and Small Cap

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

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

Diversification Opportunities for Invesco Global and Small Cap

0.24

Correlation Coefficient

Invesco Global  Small Cap

Modest diversification

The 3 months correlation between Invesco and Small is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Global Health and Small Cap Value Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Invesco Global 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 Global Health are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Invesco Global i.e., Invesco Global and Small Cap go up and down completely randomly.

Pair Corralation between Invesco Global and Small Cap

Assuming the 90 days horizon Invesco Global Health is expected to generate 0.78 times more return on investment than Small Cap. However, Invesco Global Health is 1.28 times less risky than Small Cap. It trades about -0.37 of its potential returns per unit of risk. Small Cap Value Fund is currently generating about -0.46 per unit of risk. If you would invest  4,104  in Invesco Global Health on September 25, 2024 and sell it today you would lose (381.00) from holding Invesco Global Health or give up 9.28% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Invesco Global Health  vs.  Small Cap Value Fund

Invesco Global Health

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Global Health has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in January 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Small Cap Value

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Small Cap Value Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Invesco Global and Small Cap

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

The idea behind Invesco Global Health and Small Cap Value Fund 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.