Correlation Between Invesco DB and SPDR SP

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Can any of the company-specific risk be diversified away by investing in both Invesco DB 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 DB 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 DB Energy and SPDR SP 500, you can compare the effects of market volatilities on Invesco DB 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 DB with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DB and SPDR SP.

Diversification Opportunities for Invesco DB and SPDR SP

0.76
  Correlation Coefficient

Poor diversification

The 3 months correlation between Invesco and SPDR is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DB Energy and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and Invesco DB 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 DB Energy 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 500 has no effect on the direction of Invesco DB i.e., Invesco DB and SPDR SP go up and down completely randomly.

Pair Corralation between Invesco DB and SPDR SP

Considering the 90-day investment horizon Invesco DB Energy is expected to generate 1.49 times more return on investment than SPDR SP. However, Invesco DB is 1.49 times more volatile than SPDR SP 500. It trades about 0.22 of its potential returns per unit of risk. SPDR SP 500 is currently generating about 0.28 per unit of risk. If you would invest  1,988  in Invesco DB Energy on December 30, 2023 and sell it today you would earn a total of  84.00  from holding Invesco DB Energy or generate 4.23% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

Invesco DB Energy  vs.  SPDR SP 500

 Performance 
       Timeline  
Invesco DB Energy 

Risk-Adjusted Performance

9 of 100

 
Low
 
High
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Energy are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of rather weak fundamental drivers, Invesco DB may actually be approaching a critical reversion point that can send shares even higher in April 2024.
SPDR SP 500 

Risk-Adjusted Performance

19 of 100

 
Low
 
High
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 19 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in April 2024.

Invesco DB and SPDR SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with Invesco DB and SPDR SP

The main advantage of trading using opposite Invesco DB and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DB 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 DB Energy and SPDR 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 Stock Screener module to find equities using a custom stock filter or screen asymmetry in trading patterns, price, volume, or investment outlook..

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