Correlation Between Health Care and Invesco Municipal
Can any of the company-specific risk be diversified away by investing in both Health Care and Invesco Municipal 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 Health Care and Invesco Municipal into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Health Care Fund and Invesco Municipal Income, you can compare the effects of market volatilities on Health Care and Invesco Municipal 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 Health Care with a short position of Invesco Municipal. Check out your portfolio center. Please also check ongoing floating volatility patterns of Health Care and Invesco Municipal.
Diversification Opportunities for Health Care and Invesco Municipal
0.24 | Correlation Coefficient |
Modest diversification
The 3 months correlation between Health and Invesco is 0.24. Overlapping area represents the amount of risk that can be diversified away by holding Health Care Fund and Invesco Municipal Income in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Municipal Income and Health Care 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 Health Care Fund are associated (or correlated) with Invesco Municipal. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Municipal Income has no effect on the direction of Health Care i.e., Health Care and Invesco Municipal go up and down completely randomly.
Pair Corralation between Health Care and Invesco Municipal
Assuming the 90 days horizon Health Care Fund is expected to generate 2.6 times more return on investment than Invesco Municipal. However, Health Care is 2.6 times more volatile than Invesco Municipal Income. It trades about 0.1 of its potential returns per unit of risk. Invesco Municipal Income is currently generating about 0.19 per unit of risk. If you would invest 3,608 in Health Care Fund on September 1, 2024 and sell it today you would earn a total of 68.00 from holding Health Care Fund or generate 1.88% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Weak |
| Accuracy | 95.45% |
| Values | Daily Returns |
Health Care Fund vs. Invesco Municipal Income
Performance |
| Timeline |
| Health Care Fund |
| Invesco Municipal Income |
Health Care and Invesco Municipal Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Health Care and Invesco Municipal
The main advantage of trading using opposite Health Care and Invesco Municipal positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Health Care position performs unexpectedly, Invesco Municipal 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 Municipal will offset losses from the drop in Invesco Municipal's long position.| Health Care vs. Banking Fund Class | Health Care vs. Basic Materials Fund | Health Care vs. Biotechnology Fund Class | Health Care vs. Government Long Bond |
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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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..
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