Correlation Between Invesco RAFI and Invesco NASDAQ

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

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

Diversification Opportunities for Invesco RAFI and Invesco NASDAQ

0.85

Correlation Coefficient

Invesco RAFI  Invesco NASDAQ

Very poor diversification

The 3 months correlation between Invesco and Invesco is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Invesco RAFI Strategic and Invesco NASDAQ Future in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco NASDAQ Future and Invesco RAFI 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 RAFI Strategic are associated (or correlated) with Invesco NASDAQ. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco NASDAQ Future has no effect on the direction of Invesco RAFI i.e., Invesco RAFI and Invesco NASDAQ go up and down completely randomly.

Pair Corralation between Invesco RAFI and Invesco NASDAQ

Considering the 90-day investment horizon Invesco RAFI is expected to generate 2.45 times less return on investment than Invesco NASDAQ. But when comparing it to its historical volatility, Invesco RAFI Strategic is 2.56 times less risky than Invesco NASDAQ. It trades about 0.17 of its potential returns per unit of risk. Invesco NASDAQ Future is currently generating about 0.16 of returns per unit of risk over similar time horizon. If you would invest  2,618  in Invesco NASDAQ Future on September 12, 2024 and sell it today you would earn a total of  423.00  from holding Invesco NASDAQ Future or generate 16.16% return on investment over 90 days.

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

Invesco RAFI Strategic  vs.  Invesco NASDAQ Future

Invesco RAFI Strategic

Risk-Adjusted Performance

13 of 100

Good

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

Invesco NASDAQ Future

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco NASDAQ Future are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Invesco NASDAQ unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco RAFI and Invesco NASDAQ

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

The idea behind Invesco RAFI Strategic and Invesco NASDAQ Future 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 Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.