Correlation Between Vanguard Multifactor and Invesco SP

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

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

Diversification Opportunities for Vanguard Multifactor and Invesco SP

0.9

Correlation Coefficient

Vanguard Multifactor  Invesco SP

Almost no diversification

The 3 months correlation between Vanguard and Invesco is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Multifactor 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 Vanguard Multifactor 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 Vanguard Multifactor 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 Vanguard Multifactor i.e., Vanguard Multifactor and Invesco SP go up and down completely randomly.

Pair Corralation between Vanguard Multifactor and Invesco SP

Given the investment horizon of 90 days Vanguard Multifactor is expected to generate 0.92 times more return on investment than Invesco SP. However, Vanguard Multifactor is 1.09 times less risky than Invesco SP. It trades about 0.02 of its potential returns per unit of risk. Invesco SP MidCap is currently generating about -0.03 per unit of risk. If you would invest  12,955  in Vanguard Multifactor on September 24, 2024 and sell it today you would earn a total of  149.00  from holding Vanguard Multifactor or generate 1.15% return on investment over 90 days.

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

Vanguard Multifactor  vs.  Invesco SP MidCap

Vanguard Multifactor

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Multifactor are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable primary indicators, Vanguard Multifactor is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

Invesco SP MidCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Invesco SP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Vanguard Multifactor and Invesco SP

The main advantage of trading using opposite Vanguard Multifactor and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Multifactor 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 Vanguard Multifactor 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 Analyst Advice module to analyst recommendations and target price estimates broken down by several categories.