Correlation Between Invesco CurrencyShares and SPDR SP
Can any of the company-specific risk be diversified away by investing in both Invesco CurrencyShares and SPDR 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 Invesco CurrencyShares and SPDR SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco CurrencyShares Euro and SPDR SP 500, you can compare the effects of market volatilities on Invesco CurrencyShares and SPDR 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 Invesco CurrencyShares with a short position of SPDR SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco CurrencyShares and SPDR SP.
Diversification Opportunities for Invesco CurrencyShares and SPDR SP
0.19 | Correlation Coefficient |
Average diversification
The 3 months correlation between Invesco and SPDR is 0.19. Overlapping area represents the amount of risk that can be diversified away by holding Invesco CurrencyShares Euro and SPDR SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP 500 and Invesco CurrencyShares 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 CurrencyShares Euro are associated (or correlated) with SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP 500 has no effect on the direction of Invesco CurrencyShares i.e., Invesco CurrencyShares and SPDR SP go up and down completely randomly.
Pair Corralation between Invesco CurrencyShares and SPDR SP
Assuming the 90 days trading horizon Invesco CurrencyShares is expected to generate 3.45 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Invesco CurrencyShares Euro is 1.8 times less risky than SPDR SP. It trades about 0.1 of its potential returns per unit of risk. SPDR SP 500 is currently generating about 0.19 of returns per unit of risk over similar time horizon. If you would invest 1,163,708 in SPDR SP 500 on August 27, 2024 and sell it today you would earn a total of 55,482 from holding SPDR SP 500 or generate 4.77% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Insignificant |
| Accuracy | 95.0% |
| Values | Daily Returns |
Invesco CurrencyShares Euro vs. SPDR SP 500
Performance |
| Timeline |
| Invesco CurrencyShares |
| SPDR SP 500 |
Invesco CurrencyShares and SPDR SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco CurrencyShares and SPDR SP
The main advantage of trading using opposite Invesco CurrencyShares and SPDR SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco CurrencyShares position performs unexpectedly, SPDR 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 SPDR SP will offset losses from the drop in SPDR SP's long position.The idea behind Invesco CurrencyShares Euro and SPDR 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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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 Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.
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