Correlation Between NYSE Composite and Invesco Stock

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

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

Diversification Opportunities for NYSE Composite and Invesco Stock

0.93

Correlation Coefficient

NYSE Composite  Invesco Stock

Almost no diversification

The 3 months correlation between NYSE and Invesco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding NYSE Composite and Invesco Stock Fund in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Stock and NYSE Composite 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 NYSE Composite are associated (or correlated) with Invesco Stock. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Stock has no effect on the direction of NYSE Composite i.e., NYSE Composite and Invesco Stock go up and down completely randomly.

Pair Corralation between NYSE Composite and Invesco Stock

Assuming the 90 days trading horizon NYSE Composite is expected to generate 1.58 times less return on investment than Invesco Stock. But when comparing it to its historical volatility, NYSE Composite is 1.23 times less risky than Invesco Stock. It trades about 0.13 of its potential returns per unit of risk. Invesco Stock Fund is currently generating about 0.17 of returns per unit of risk over similar time horizon. If you would invest  2,999  in Invesco Stock Fund on September 12, 2024 and sell it today you would earn a total of  226.00  from holding Invesco Stock Fund or generate 7.54% return on investment over 90 days.

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

NYSE Composite  vs.  Invesco Stock Fund

Pair Trading with NYSE Composite and Invesco Stock

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

The idea behind NYSE Composite and Invesco Stock 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.