Correlation Between SPDR SP and Invesco SP

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Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and Invesco SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Health and Invesco SP SmallCap, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Invesco SP.

Diversification Opportunities for SPDR SP and Invesco SP

SPDRInvescoDiversified AwaySPDRInvescoDiversified Away100%
0.79
  Correlation Coefficient

Poor diversification

The 3 months correlation between SPDR and Invesco is 0.79. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Health 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 SPDR 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 SPDR SP Health 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 SPDR SP i.e., SPDR SP and Invesco SP go up and down completely randomly.

Pair Corralation between SPDR SP and Invesco SP

Considering the 90-day investment horizon SPDR SP Health is expected to generate 1.26 times more return on investment than Invesco SP. However, SPDR SP is 1.26 times more volatile than Invesco SP SmallCap. It trades about 0.15 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.0 per unit of risk. If you would invest  8,894  in SPDR SP Health on September 16, 2024 and sell it today you would earn a total of  253.00  from holding SPDR SP Health or generate 2.84% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

SPDR SP Health  vs.  Invesco SP SmallCap

 Performance 
JavaScript chart by amCharts 3.21.15OctNov 051015
JavaScript chart by amCharts 3.21.15XHE PSCF
       Timeline  
SPDR SP Health 

Risk-Adjusted Performance

2 of 100

 
Weak
 
Strong
Weak
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Health are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound technical indicators, SPDR SP is not utilizing all of its potentials. The newest stock price tumult, may contribute to shorter-term losses for the shareholders.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec868788899091929394
Invesco SP SmallCap 

Risk-Adjusted Performance

6 of 100

 
Weak
 
Strong
Modest
Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent fundamental indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in January 2025.
JavaScript chart by amCharts 3.21.15OctNovDecNovDec545556575859606162

SPDR SP and Invesco SP Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-3.28-2.46-1.63-0.810.01410.841.692.533.38 0.050.100.150.200.250.300.35
JavaScript chart by amCharts 3.21.15XHE PSCF
       Returns  

Pair Trading with SPDR SP and Invesco SP

The main advantage of trading using opposite SPDR SP and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP Health 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .

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