Correlation Between Invesco SP and Vanguard Russell

Can any of the company-specific risk be diversified away by investing in both Invesco SP and Vanguard Russell 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 Russell 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 Russell 2000, you can compare the effects of market volatilities on Invesco SP and Vanguard Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and Vanguard Russell.

Diversification Opportunities for Invesco SP and Vanguard Russell

0.87

Correlation Coefficient

Invesco SP  Vanguard Russell

Very poor diversification

The 3 months correlation between Invesco and Vanguard is 0.87. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP MidCap and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 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 Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of Invesco SP i.e., Invesco SP and Vanguard Russell go up and down completely randomly.

Pair Corralation between Invesco SP and Vanguard Russell

Considering the 90-day investment horizon Invesco SP MidCap is expected to generate 0.86 times more return on investment than Vanguard Russell. However, Invesco SP MidCap is 1.16 times less risky than Vanguard Russell. It trades about 0.06 of its potential returns per unit of risk. Vanguard Russell 2000 is currently generating about 0.02 per unit of risk. If you would invest  7,822  in Invesco SP MidCap on March 19, 2024 and sell it today you would earn a total of  3,137  from holding Invesco SP MidCap or generate 40.1% 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 Russell 2000

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 latest stock price mess, may contribute to short-term losses for the institutional investors.

Vanguard Russell 2000

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Russell 2000 has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Vanguard Russell is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with Invesco SP and Vanguard Russell

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

The idea behind Invesco SP MidCap and Vanguard Russell 2000 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 Crypto Correlations module to use cryptocurrency correlation module to diversify your cryptocurrency portfolio across multiple coins.