Correlation Between Invesco Water and American Beacon
Can any of the company-specific risk be diversified away by investing in both Invesco Water and American Beacon 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 Water and American Beacon into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco Water Resources and American Beacon Select, you can compare the effects of market volatilities on Invesco Water and American Beacon 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 Water with a short position of American Beacon. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Water and American Beacon.
Diversification Opportunities for Invesco Water and American Beacon
0.8 | Correlation Coefficient |
Very poor diversification
The 3 months correlation between Invesco and American is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Water Resources and American Beacon Select in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Beacon Select and Invesco Water 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 Water Resources are associated (or correlated) with American Beacon. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Beacon Select has no effect on the direction of Invesco Water i.e., Invesco Water and American Beacon go up and down completely randomly.
Pair Corralation between Invesco Water and American Beacon
Considering the 90-day investment horizon Invesco Water is expected to generate 2.2 times less return on investment than American Beacon. But when comparing it to its historical volatility, Invesco Water Resources is 1.4 times less risky than American Beacon. It trades about 0.07 of its potential returns per unit of risk. American Beacon Select is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest 2,423 in American Beacon Select on August 29, 2024 and sell it today you would earn a total of 809.00 from holding American Beacon Select or generate 33.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Strong |
| Accuracy | 41.41% |
| Values | Daily Returns |
Invesco Water Resources vs. American Beacon Select
Performance |
| Timeline |
| Invesco Water Resources |
| American Beacon Select |
Invesco Water and American Beacon Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco Water and American Beacon
The main advantage of trading using opposite Invesco Water and American Beacon positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Water position performs unexpectedly, American Beacon 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 American Beacon will offset losses from the drop in American Beacon's long position.| Invesco Water vs. Invesco SP Global | Invesco Water vs. Invesco Global Water | Invesco Water vs. First Trust Water | Invesco Water vs. Invesco WilderHill Clean |
| American Beacon vs. First Trust Exchange Traded | American Beacon vs. Ultimus Managers Trust | American Beacon vs. Horizon Kinetics Medical | American Beacon vs. Harbor Health Care |
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 Portfolio Rebalancing module to analyze risk-adjusted returns against different time horizons to find asset-allocation targets.
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