Correlation Between Invesco Energy and Ultrashort Japan

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

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

Diversification Opportunities for Invesco Energy and Ultrashort Japan

0.1

Correlation Coefficient

Invesco Energy  Ultrashort Japan

Average diversification

The 3 months correlation between Invesco and Ultrashort is 0.1. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Energy Fund and Ultrashort Japan Profund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Ultrashort Japan Profund and Invesco Energy 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 Energy Fund are associated (or correlated) with Ultrashort Japan. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Ultrashort Japan Profund has no effect on the direction of Invesco Energy i.e., Invesco Energy and Ultrashort Japan go up and down completely randomly.

Pair Corralation between Invesco Energy and Ultrashort Japan

Assuming the 90 days horizon Invesco Energy Fund is expected to generate 0.54 times more return on investment than Ultrashort Japan. However, Invesco Energy Fund is 1.84 times less risky than Ultrashort Japan. It trades about -0.07 of its potential returns per unit of risk. Ultrashort Japan Profund is currently generating about -0.06 per unit of risk. If you would invest  2,461  in Invesco Energy Fund on September 29, 2024 and sell it today you would lose (155.00) from holding Invesco Energy Fund or give up 6.3% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	98.44%
Values	Daily Returns

Invesco Energy Fund  vs.  Ultrashort Japan Profund

Invesco Energy

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Energy Fund has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong fundamental indicators, Invesco Energy is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Ultrashort Japan Profund

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ultrashort Japan Profund has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's forward 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 Energy and Ultrashort Japan

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

The idea behind Invesco Energy Fund and Ultrashort Japan Profund 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 Alpha Finder module to use alpha and beta coefficients to find investment opportunities after accounting for the risk.