Correlation Between Invesco Income and Invesco Select

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

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

Diversification Opportunities for Invesco Income and Invesco Select

0.9

Correlation Coefficient

Invesco Income  Invesco Select

Almost no diversification

The 3 months correlation between Invesco and Invesco is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Income Allocation and Invesco Select Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Select Risk and Invesco Income 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 Income Allocation are associated (or correlated) with Invesco Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Select Risk has no effect on the direction of Invesco Income i.e., Invesco Income and Invesco Select go up and down completely randomly.

Pair Corralation between Invesco Income and Invesco Select

Assuming the 90 days horizon Invesco Income is expected to generate 1.65 times less return on investment than Invesco Select. But when comparing it to its historical volatility, Invesco Income Allocation is 1.67 times less risky than Invesco Select. It trades about 0.19 of its potential returns per unit of risk. Invesco Select Risk is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest  1,154  in Invesco Select Risk on August 31, 2024 and sell it today you would earn a total of  25.00  from holding Invesco Select Risk or generate 2.17% return on investment over 90 days.

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

Invesco Income Allocation  vs.  Invesco Select Risk

Invesco Income Allocation

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Income Allocation are ranked lower than 8 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Invesco Income is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco Select Risk

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Select Risk are ranked lower than 10 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong primary indicators, Invesco Select is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco Income and Invesco Select

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

The idea behind Invesco Income Allocation and Invesco Select Risk 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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.