Correlation Between SPDR SP and Invesco SP
Can any of the company-specific risk be diversified away by investing in both SPDR SP and Invesco 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 SPDR SP and Invesco SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between SPDR SP 400 and Invesco SP MidCap, you can compare the effects of market volatilities on SPDR SP and Invesco 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 SPDR SP with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of SPDR SP and Invesco SP.
Diversification Opportunities for SPDR SP and Invesco SP
0.98 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between SPDR and Invesco is 0.98. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP 400 and Invesco SP MidCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP MidCap 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 400 are associated (or correlated) with Invesco SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco SP MidCap has no effect on the direction of SPDR SP i.e., SPDR SP and Invesco SP go up and down completely randomly.
Pair Corralation between SPDR SP and Invesco SP
Given the investment horizon of 90 days SPDR SP 400 is expected to generate 1.34 times more return on investment than Invesco SP. However, SPDR SP is 1.34 times more volatile than Invesco SP MidCap. It trades about 0.18 of its potential returns per unit of risk. Invesco SP MidCap is currently generating about 0.2 per unit of risk. If you would invest 7,769 in SPDR SP 400 on August 28, 2024 and sell it today you would earn a total of 948.00 from holding SPDR SP 400 or generate 12.2% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
SPDR SP 400 vs. Invesco SP MidCap
Performance |
| Timeline |
| SPDR SP 400 |
| Invesco SP MidCap |
SPDR SP and Invesco SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with SPDR SP and Invesco SP
The main advantage of trading using opposite SPDR SP and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR SP position performs unexpectedly, Invesco 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 Invesco SP will offset losses from the drop in Invesco SP's long position.The idea behind SPDR SP 400 and Invesco SP MidCap 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.| Invesco SP vs. Invesco SP SmallCap | Invesco SP vs. Invesco SP International | Invesco SP vs. Invesco SP 500 | Invesco SP vs. iShares MSCI EAFE |
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 Money Managers module to screen money managers from public funds and ETFs managed around the world.
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