Correlation Between Invesco Select and Small Cap
Can any of the company-specific risk be diversified away by investing in both Invesco Select and Small Cap 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 Select and Small Cap into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco Select Risk and Small Cap Value Series, you can compare the effects of market volatilities on Invesco Select and Small Cap 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 Select with a short position of Small Cap. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Select and Small Cap.
Diversification Opportunities for Invesco Select and Small Cap
0.75 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Invesco and Small is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Select Risk and Small Cap Value Series in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Small Cap Value and Invesco Select 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 Select Risk are associated (or correlated) with Small Cap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Small Cap Value has no effect on the direction of Invesco Select i.e., Invesco Select and Small Cap go up and down completely randomly.
Pair Corralation between Invesco Select and Small Cap
Assuming the 90 days horizon Invesco Select is expected to generate 2.05 times less return on investment than Small Cap. But when comparing it to its historical volatility, Invesco Select Risk is 2.3 times less risky than Small Cap. It trades about 0.12 of its potential returns per unit of risk. Small Cap Value Series is currently generating about 0.1 of returns per unit of risk over similar time horizon. If you would invest 1,368 in Small Cap Value Series on August 24, 2024 and sell it today you would earn a total of 455.00 from holding Small Cap Value Series or generate 33.26% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Invesco Select Risk vs. Small Cap Value Series
Performance |
| Timeline |
| Invesco Select Risk |
| Small Cap Value |
Invesco Select and Small Cap Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco Select and Small Cap
The main advantage of trading using opposite Invesco Select and Small Cap positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Select position performs unexpectedly, Small Cap 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 Small Cap will offset losses from the drop in Small Cap's long position.| Invesco Select vs. Small Cap Value Series | Invesco Select vs. Lord Abbett Small | Invesco Select vs. Ab Discovery Value | Invesco Select vs. Hennessy Nerstone Mid |
| Small Cap vs. Hennessy Nerstone Mid | Small Cap vs. Boston Partners Small | Small Cap vs. Fidelity Small Cap | Small Cap vs. Ab Discovery Value |
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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.
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