Correlation Between Invesco FTSE and Invesco SP

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

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

Diversification Opportunities for Invesco FTSE and Invesco SP

-0.58

Correlation Coefficient

Invesco FTSE  Invesco SP

Excellent diversification

The 3 months correlation between Invesco and Invesco is -0.58. Overlapping area represents the amount of risk that can be diversified away by holding Invesco FTSE RAFI and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap and Invesco FTSE 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 FTSE RAFI are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP MidCap has no effect on the direction of Invesco FTSE i.e., Invesco FTSE and Invesco SP go up and down completely randomly.

Pair Corralation between Invesco FTSE and Invesco SP

Considering the 90-day investment horizon Invesco FTSE RAFI is expected to under-perform the Invesco SP. In addition to that, Invesco FTSE is 1.1 times more volatile than Invesco SP MidCap. It trades about -0.03 of its total potential returns per unit of risk. Invesco SP MidCap is currently generating about 0.21 per unit of volatility. If you would invest  5,931  in Invesco SP MidCap on September 3, 2024 and sell it today you would earn a total of  613.00  from holding Invesco SP MidCap or generate 10.34% return on investment over 90 days.

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

Invesco FTSE RAFI  vs.  Invesco SP MidCap

Invesco FTSE RAFI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco FTSE RAFI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, Invesco FTSE is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco SP MidCap

Risk-Adjusted Performance

16 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. In spite of fairly abnormal essential indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco FTSE and Invesco SP

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

The idea behind Invesco FTSE RAFI and Invesco SP MidCap 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 Bonds Directory module to find actively traded corporate debentures issued by US companies.