Correlation Between Xtrackers and Invesco Health

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

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

Diversification Opportunities for Xtrackers and Invesco Health

-0.67

Correlation Coefficient

Xtrackers  Invesco Health

Excellent diversification

The 3 months correlation between Xtrackers and Invesco is -0.67. Overlapping area represents the amount of risk that can be diversified away by holding Xtrackers SP 500 and Invesco Health Care in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Health Care and Xtrackers 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 Xtrackers SP 500 are associated (or correlated) with Invesco Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Health Care has no effect on the direction of Xtrackers i.e., Xtrackers and Invesco Health go up and down completely randomly.

Pair Corralation between Xtrackers and Invesco Health

Assuming the 90 days trading horizon Xtrackers SP 500 is expected to generate 2.06 times more return on investment than Invesco Health. However, Xtrackers is 2.06 times more volatile than Invesco Health Care. It trades about 0.18 of its potential returns per unit of risk. Invesco Health Care is currently generating about -0.14 per unit of risk. If you would invest  20,911  in Xtrackers SP 500 on September 4, 2024 and sell it today you would earn a total of  3,767  from holding Xtrackers SP 500 or generate 18.01% return on investment over 90 days.

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

Xtrackers SP 500  vs.  Invesco Health Care

Xtrackers SP 500

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Xtrackers SP 500 are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Xtrackers unveiled solid returns over the last few months and may actually be approaching a breakup point.

Invesco Health Care

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Health Care has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco Health 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 Xtrackers and Invesco Health

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

The idea behind Xtrackers SP 500 and Invesco Health Care 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 Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.