Correlation Between Invesco SP and ETF Series

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

By analyzing existing cross correlation between Invesco SP 500 and ETF Series Solutions, you can compare the effects of market volatilities on Invesco SP and ETF Series 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 SP with a short position of ETF Series. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and ETF Series.

Diversification Opportunities for Invesco SP and ETF Series

0.78

Correlation Coefficient

Invesco SP  ETF Series

Poor diversification

The 3 months correlation between Invesco and ETF is 0.78. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and ETF Series Solutions in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on ETF Series Solutions and Invesco SP 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 SP 500 are associated (or correlated) with ETF Series. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of ETF Series Solutions has no effect on the direction of Invesco SP i.e., Invesco SP and ETF Series go up and down completely randomly.

Pair Corralation between Invesco SP and ETF Series

Given the investment horizon of 90 days Invesco SP is expected to generate 1.54 times less return on investment than ETF Series. But when comparing it to its historical volatility, Invesco SP 500 is 1.6 times less risky than ETF Series. It trades about 0.11 of its potential returns per unit of risk. ETF Series Solutions is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  3,168  in ETF Series Solutions on September 2, 2024 and sell it today you would earn a total of  208.00  from holding ETF Series Solutions or generate 6.57% return on investment over 90 days.

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

Invesco SP 500  vs.  ETF Series Solutions

Invesco SP 500

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable fundamental indicators, Invesco SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

ETF Series Solutions

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in ETF Series Solutions are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak basic indicators, ETF Series may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco SP and ETF Series

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

The idea behind Invesco SP 500 and ETF Series Solutions 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 Risk-Return Analysis module to view associations between returns expected from investment and the risk you assume.