Correlation Between VanEck Semiconductor and Invesco SP

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

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

Diversification Opportunities for VanEck Semiconductor and Invesco SP

0.66

Correlation Coefficient

VanEck Semiconductor  Invesco SP

Poor diversification

The 3 months correlation between VanEck and Invesco is 0.66. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Semiconductor ETF and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap and VanEck Semiconductor 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 VanEck Semiconductor ETF 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 SmallCap has no effect on the direction of VanEck Semiconductor i.e., VanEck Semiconductor and Invesco SP go up and down completely randomly.

Pair Corralation between VanEck Semiconductor and Invesco SP

Considering the 90-day investment horizon VanEck Semiconductor is expected to generate 1.34 times less return on investment than Invesco SP. In addition to that, VanEck Semiconductor is 1.26 times more volatile than Invesco SP SmallCap. It trades about 0.07 of its total potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.12 per unit of volatility. If you would invest  4,548  in Invesco SP SmallCap on September 2, 2024 and sell it today you would earn a total of  505.00  from holding Invesco SP SmallCap or generate 11.1% return on investment over 90 days.

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

VanEck Semiconductor ETF  vs.  Invesco SP SmallCap

VanEck Semiconductor ETF

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Semiconductor ETF are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak primary indicators, VanEck Semiconductor may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco SP SmallCap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively conflicting fundamental indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with VanEck Semiconductor and Invesco SP

The main advantage of trading using opposite VanEck Semiconductor and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VanEck Semiconductor 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 VanEck Semiconductor ETF and Invesco SP SmallCap 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.