Correlation Between MicroSectors FANG and Invesco KBW
Can any of the company-specific risk be diversified away by investing in both MicroSectors FANG and Invesco KBW 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 MicroSectors FANG and Invesco KBW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between MicroSectors FANG Index and Invesco KBW Regional, you can compare the effects of market volatilities on MicroSectors FANG and Invesco KBW 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 MicroSectors FANG with a short position of Invesco KBW. Check out your portfolio center. Please also check ongoing floating volatility patterns of MicroSectors FANG and Invesco KBW.
Diversification Opportunities for MicroSectors FANG and Invesco KBW
0.84 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between MicroSectors and Invesco is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding MicroSectors FANG Index and Invesco KBW Regional in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW Regional and MicroSectors FANG 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 MicroSectors FANG Index are associated (or correlated) with Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW Regional has no effect on the direction of MicroSectors FANG i.e., MicroSectors FANG and Invesco KBW go up and down completely randomly.
Pair Corralation between MicroSectors FANG and Invesco KBW
Given the investment horizon of 90 days MicroSectors FANG Index is expected to generate 1.59 times more return on investment than Invesco KBW. However, MicroSectors FANG is 1.59 times more volatile than Invesco KBW Regional. It trades about 0.09 of its potential returns per unit of risk. Invesco KBW Regional is currently generating about 0.07 per unit of risk. If you would invest 3,524 in MicroSectors FANG Index on August 31, 2024 and sell it today you would earn a total of 4,795 from holding MicroSectors FANG Index or generate 136.07% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 99.73% |
| Values | Daily Returns |
MicroSectors FANG Index vs. Invesco KBW Regional
Performance |
| Timeline |
| MicroSectors FANG Index |
| Invesco KBW Regional |
MicroSectors FANG and Invesco KBW Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with MicroSectors FANG and Invesco KBW
The main advantage of trading using opposite MicroSectors FANG and Invesco KBW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if MicroSectors FANG position performs unexpectedly, Invesco KBW 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 KBW will offset losses from the drop in Invesco KBW's long position.| MicroSectors FANG vs. MicroSectors FANG ETN | MicroSectors FANG vs. Direxion Daily Dow | MicroSectors FANG vs. MicroSectors FANG Index | MicroSectors FANG vs. Direxion Daily Cnsmr |
| Invesco KBW vs. First Trust NASDAQ | Invesco KBW vs. Invesco KBW Bank | Invesco KBW vs. Invesco KBW Property | Invesco KBW vs. Invesco SP SmallCap |
Check out your portfolio center.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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.
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