Correlation Between Avantis Small and Invesco SP

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

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

Diversification Opportunities for Avantis Small and Invesco SP

0.93

Correlation Coefficient

Avantis Small  Invesco SP

Almost no diversification

The 3 months correlation between Avantis and Invesco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Avantis Small Cap and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap and Avantis Small 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 Avantis Small Cap 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 MidCap has no effect on the direction of Avantis Small i.e., Avantis Small and Invesco SP go up and down completely randomly.

Pair Corralation between Avantis Small and Invesco SP

Given the investment horizon of 90 days Avantis Small Cap is expected to under-perform the Invesco SP. In addition to that, Avantis Small is 1.15 times more volatile than Invesco SP MidCap. It trades about -0.1 of its total potential returns per unit of risk. Invesco SP MidCap is currently generating about -0.09 per unit of volatility. If you would invest  5,284  in Invesco SP MidCap on March 9, 2024 and sell it today you would lose (95.00) from holding Invesco SP MidCap or give up 1.8% of portfolio value over 90 days.

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

Avantis Small Cap  vs.  Invesco SP MidCap

Avantis Small Cap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Avantis Small Cap are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable basic indicators, Avantis Small is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Invesco SP MidCap

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Avantis Small and Invesco SP

The main advantage of trading using opposite Avantis Small and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Avantis Small 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 Avantis Small Cap and Invesco 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 Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.