Correlation Between Invesco SP and SPDR SP

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

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

Diversification Opportunities for Invesco SP and SPDR SP

0.98

Correlation Coefficient

Invesco SP  SPDR SP

Almost no diversification

The 3 months correlation between Invesco and SPDR is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP MidCap and SPDR SP MIDCAP in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP MIDCAP 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 MidCap are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP MIDCAP has no effect on the direction of Invesco SP i.e., Invesco SP and SPDR SP go up and down completely randomly.

Pair Corralation between Invesco SP and SPDR SP

Given the investment horizon of 90 days Invesco SP MidCap is expected to under-perform the SPDR SP. In addition to that, Invesco SP is 1.14 times more volatile than SPDR SP MIDCAP. It trades about -0.22 of its total potential returns per unit of risk. SPDR SP MIDCAP is currently generating about -0.2 per unit of volatility. If you would invest  59,846  in SPDR SP MIDCAP on September 22, 2024 and sell it today you would lose (2,823) from holding SPDR SP MIDCAP or give up 4.72% of portfolio value over 90 days.

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

Invesco SP MidCap  vs.  SPDR SP MIDCAP

Invesco SP MidCap

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy primary indicators, Invesco SP is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

SPDR SP MIDCAP

Risk-Adjusted Performance

1 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP MIDCAP are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong fundamental indicators, SPDR SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Invesco SP and SPDR SP

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

The idea behind Invesco SP MidCap and SPDR 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.