Correlation Between American Funds and Invesco Total

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

Diversification Opportunities for American Funds and Invesco Total

0.77
  Correlation Coefficient

Poor diversification

The 3 months correlation between American and Invesco is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding American Funds Fundamental and Invesco Total Return in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Total Return and American Funds 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 American Funds Fundamental are associated (or correlated) with Invesco Total. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Total Return has no effect on the direction of American Funds i.e., American Funds and Invesco Total go up and down completely randomly.

Pair Corralation between American Funds and Invesco Total

Assuming the 90 days horizon American Funds Fundamental is expected to generate 3.05 times more return on investment than Invesco Total. However, American Funds is 3.05 times more volatile than Invesco Total Return. It trades about 0.12 of its potential returns per unit of risk. Invesco Total Return is currently generating about 0.04 per unit of risk. If you would invest  8,194  in American Funds Fundamental on October 23, 2024 and sell it today you would earn a total of  144.00  from holding American Funds Fundamental or generate 1.76% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Together 
StrengthSignificant
Accuracy100.0%
ValuesDaily Returns

American Funds Fundamental  vs.  Invesco Total Return

 Performance 
       Timeline  
American Funds Funda 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days American Funds Fundamental has generated negative risk-adjusted returns adding no value to fund investors. In spite of fairly strong technical and fundamental indicators, American Funds is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.
Invesco Total Return 

Risk-Adjusted Performance

0 of 100

 
Weak
 
Strong
Very Weak
Over the last 90 days Invesco Total Return has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Invesco Total is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

American Funds and Invesco Total Volatility Contrast

   Predicted Return Density   
       Returns  

Pair Trading with American Funds and Invesco Total

The main advantage of trading using opposite American Funds and Invesco Total positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if American Funds position performs unexpectedly, Invesco Total 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 Total will offset losses from the drop in Invesco Total's long position.
The idea behind American Funds Fundamental and Invesco Total Return 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 Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.

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