Correlation Between SPDR SP and Invesco SP

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Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and Invesco SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 500 and Invesco SP 500, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Invesco SP.

Diversification Opportunities for SPDR SP and Invesco SP

0.7
  Correlation Coefficient

Poor diversification

The 3 months correlation between SPDR and Invesco is 0.7. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 500 and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and SPDR 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 SPDR SP 500 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 500 has no effect on the direction of SPDR SP i.e., SPDR SP and Invesco SP go up and down completely randomly.

Pair Corralation between SPDR SP and Invesco SP

Considering the 90-day investment horizon SPDR SP is expected to generate 2.49 times less return on investment than Invesco SP. But when comparing it to its historical volatility, SPDR SP 500 is 1.13 times less risky than Invesco SP. It trades about 0.07 of its potential returns per unit of risk. Invesco SP 500 is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  16,493  in Invesco SP 500 on April 22, 2024 and sell it today you would earn a total of  347.00  from holding Invesco SP 500 or generate 2.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

SPDR SP 500  vs.  Invesco SP 500

 Performance 
       Timeline  
SPDR SP 500 

Risk-Adjusted Performance

20 of 100

 
Weak
 
Strong
Solid
Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP 500 are ranked lower than 20 (%) of all global equities and portfolios over the last 90 days. In spite of fairly conflicting basic indicators, SPDR SP may actually be approaching a critical reversion point that can send shares even higher in August 2024.
Invesco SP 500 

Risk-Adjusted Performance

9 of 100

 
Weak
 
Strong
OK
Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

SPDR SP and Invesco SP Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with SPDR SP and Invesco SP

The main advantage of trading using opposite SPDR SP and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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 SPDR SP 500 and Invesco 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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.

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