Correlation Between Invesco SP and WisdomTree Natural

Can any of the company-specific risk be diversified away by investing in both Invesco SP and WisdomTree Natural 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 WisdomTree Natural 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 WisdomTree Natural Gas, you can compare the effects of market volatilities on Invesco SP and WisdomTree Natural 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 WisdomTree Natural. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and WisdomTree Natural.

Diversification Opportunities for Invesco SP and WisdomTree Natural

-0.44

Correlation Coefficient

Invesco SP  WisdomTree Natural

Very good diversification

The 3 months correlation between Invesco and WisdomTree is -0.44. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and WisdomTree Natural Gas in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Natural Gas 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 WisdomTree Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Natural Gas has no effect on the direction of Invesco SP i.e., Invesco SP and WisdomTree Natural go up and down completely randomly.

Pair Corralation between Invesco SP and WisdomTree Natural

Assuming the 90 days trading horizon Invesco SP is expected to generate 1.29 times less return on investment than WisdomTree Natural. But when comparing it to its historical volatility, Invesco SP 500 is 13.75 times less risky than WisdomTree Natural. It trades about 0.1 of its potential returns per unit of risk. WisdomTree Natural Gas is currently generating about 0.01 of returns per unit of risk over similar time horizon. If you would invest  126,607  in WisdomTree Natural Gas on September 14, 2024 and sell it today you would lose (23,225) from holding WisdomTree Natural Gas or give up 18.34% of portfolio value over 90 days.

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

Invesco SP 500  vs.  WisdomTree Natural Gas

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. In spite of comparatively stable basic indicators, Invesco SP is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

WisdomTree Natural Gas

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days WisdomTree Natural Gas has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, WisdomTree Natural is not utilizing all of its potentials. The newest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Invesco SP and WisdomTree Natural

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

The idea behind Invesco SP 500 and WisdomTree Natural Gas 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 Holdings module to check your current holdings and cash postion to detemine if your portfolio needs rebalancing.