Correlation Between Industrial Select and Invesco SP

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

By analyzing existing cross correlation between Industrial Select Sector and Invesco SP 500, you can compare the effects of market volatilities on Industrial Select 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 Industrial Select with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Industrial Select and Invesco SP.

Diversification Opportunities for Industrial Select and Invesco SP

0.77

Correlation Coefficient

Industrial Select  Invesco SP

Poor diversification

The 3 months correlation between Industrial and Invesco is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Industrial Select Sector and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and Industrial Select 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 Industrial Select Sector 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 500 has no effect on the direction of Industrial Select i.e., Industrial Select and Invesco SP go up and down completely randomly.

Pair Corralation between Industrial Select and Invesco SP

Considering the 90-day investment horizon Industrial Select is expected to generate 1.2 times less return on investment than Invesco SP. In addition to that, Industrial Select is 1.02 times more volatile than Invesco SP 500. It trades about 0.15 of its total potential returns per unit of risk. Invesco SP 500 is currently generating about 0.19 per unit of volatility. If you would invest  4,929  in Invesco SP 500 on August 30, 2024 and sell it today you would earn a total of  559.00  from holding Invesco SP 500 or generate 11.34% return on investment over 90 days.

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

Industrial Select Sector  vs.  Invesco SP 500

Industrial Select Sector

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Industrial Select Sector are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite fairly weak essential indicators, Industrial Select may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Invesco SP 500

Risk-Adjusted Performance

14 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of very abnormal basic indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Industrial Select and Invesco SP

The main advantage of trading using opposite Industrial Select and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Industrial Select 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 Industrial Select Sector and Invesco SP 500 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 Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.