Correlation Between SPDR SP and Invesco KBW
Can any of the company-specific risk be diversified away by investing in both SPDR SP 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 SPDR SP and Invesco KBW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP Bank and Invesco KBW Regional, you can compare the effects of market volatilities on SPDR SP 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 SPDR SP with a short position of Invesco KBW. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Invesco KBW.
Diversification Opportunities for SPDR SP and Invesco KBW
0.99 | Correlation Coefficient |
No risk reduction
The 3 months correlation between SPDR and Invesco is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Bank 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 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 Bank 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 SPDR SP i.e., SPDR SP and Invesco KBW go up and down completely randomly.
Pair Corralation between SPDR SP and Invesco KBW
Considering the 90-day investment horizon SPDR SP Bank is expected to generate 0.93 times more return on investment than Invesco KBW. However, SPDR SP Bank is 1.08 times less risky than Invesco KBW. It trades about -0.05 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 6,093 in SPDR SP Bank on November 2, 2024 and sell it today you would lose (206.00) from holding SPDR SP Bank or give up 3.38% of portfolio value over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP Bank vs. Invesco KBW Regional
Performance |
| Timeline |
| SPDR SP Bank |
| Invesco KBW Regional |
SPDR SP and Invesco KBW Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Invesco KBW
The main advantage of trading using opposite SPDR SP and Invesco KBW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP 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.| SPDR SP vs. SPDR SP Regional | SPDR SP vs. SPDR SP Insurance | SPDR SP vs. SPDR SP Retail | SPDR SP vs. SPDR SP Homebuilders |
| 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 Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.
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