Correlation Between Main Street and Invesco Trust

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

Diversification Opportunities for Main Street and Invesco Trust

MainInvescoDiversified AwayMainInvescoDiversified Away100%
-0.7
  Correlation Coefficient

Excellent diversification

The 3 months correlation between Main and Invesco is -0.7. Overlapping area represents the amount of risk that can be diversified away by holding Main Street Capital and Invesco Trust For in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Trust For and Main Street 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 Main Street Capital are associated (or correlated) with Invesco Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Trust For has no effect on the direction of Main Street i.e., Main Street and Invesco Trust go up and down completely randomly.

Pair Corralation between Main Street and Invesco Trust

Given the investment horizon of 90 days Main Street is expected to generate 1.36 times less return on investment than Invesco Trust. In addition to that, Main Street is 1.63 times more volatile than Invesco Trust For. It trades about 0.13 of its total potential returns per unit of risk. Invesco Trust For is currently generating about 0.29 per unit of volatility. If you would invest  1,033  in Invesco Trust For on November 25, 2024 and sell it today you would earn a total of  32.00  from holding Invesco Trust For or generate 3.1% return on investment over 90 days.
Time Period3 Months [change]
DirectionMoves Against 
StrengthWeak
Accuracy100.0%
ValuesDaily Returns

Main Street Capital  vs.  Invesco Trust For

 Performance 
JavaScript chart by amCharts 3.21.15Dec2025Feb -10-505101520
JavaScript chart by amCharts 3.21.15MAIN VTN
       Timeline  
Main Street Capital 

Risk-Adjusted Performance

Solid

 
Weak
 
Strong
Compared to the overall equity markets, risk-adjusted returns on investments in Main Street Capital are ranked lower than 25 (%) of all global equities and portfolios over the last 90 days. In spite of very unsteady forward indicators, Main Street displayed solid returns over the last few months and may actually be approaching a breakup point.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb52545658606264
Invesco Trust For 

Risk-Adjusted Performance

Very Weak

 
Weak
 
Strong
Over the last 90 days Invesco Trust For has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, Invesco Trust is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.
JavaScript chart by amCharts 3.21.15DecJanFebJanFeb1010.210.410.610.81111.211.4

Main Street and Invesco Trust Volatility Contrast

   Predicted Return Density   
JavaScript chart by amCharts 3.21.15-2.29-1.7-1.11-0.520.05820.751.432.122.81 0.10.20.30.40.50.60.7
JavaScript chart by amCharts 3.21.15MAIN VTN
       Returns  

Pair Trading with Main Street and Invesco Trust

The main advantage of trading using opposite Main Street and Invesco Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Main Street position performs unexpectedly, Invesco Trust 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 Trust will offset losses from the drop in Invesco Trust's long position.
The idea behind Main Street Capital and Invesco Trust For 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 Bollinger Bands module to use Bollinger Bands indicator to analyze target price for a given investing horizon.

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