Correlation Between Invesco SP and Vanguard Small

Can any of the company-specific risk be diversified away by investing in both Invesco SP and Vanguard Small 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 Vanguard Small 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 Vanguard Small Cap Value, you can compare the effects of market volatilities on Invesco SP and Vanguard Small 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 Vanguard Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and Vanguard Small.

Diversification Opportunities for Invesco SP and Vanguard Small

0.85

Correlation Coefficient

Invesco SP  Vanguard Small

Very poor diversification

The 3 months correlation between Invesco and Vanguard is 0.85. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP MidCap and Vanguard Small Cap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap 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 Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Invesco SP i.e., Invesco SP and Vanguard Small go up and down completely randomly.

Pair Corralation between Invesco SP and Vanguard Small

Considering the 90-day investment horizon Invesco SP MidCap is expected to generate 1.06 times more return on investment than Vanguard Small. However, Invesco SP is 1.06 times more volatile than Vanguard Small Cap Value. It trades about 0.08 of its potential returns per unit of risk. Vanguard Small Cap Value is currently generating about 0.06 per unit of risk. If you would invest  10,665  in Invesco SP MidCap on March 18, 2024 and sell it today you would earn a total of  294.00  from holding Invesco SP MidCap or generate 2.76% return on investment over 90 days.

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

Invesco SP MidCap  vs.  Vanguard Small Cap Value

Invesco SP MidCap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco SP MidCap has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent basic indicators, Invesco SP is not utilizing all of its potentials. The current stock price mess, may contribute to short-term losses for the institutional investors.

Vanguard Small Cap

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Small Cap Value has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Vanguard Small is not utilizing all of its potentials. The recent stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with Invesco SP and Vanguard Small

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

The idea behind Invesco SP MidCap and Vanguard Small Cap Value 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 Pair Correlation module to compare performance and examine fundamental relationship between any two equity instruments.