Correlation Between Vanguard Materials and Invesco SP
Can any of the company-specific risk be diversified away by investing in both Vanguard Materials 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 Vanguard Materials and Invesco SP into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Materials Index and Invesco SP 500, you can compare the effects of market volatilities on Vanguard Materials 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 Vanguard Materials with a short position of Invesco SP. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Materials and Invesco SP.
Diversification Opportunities for Vanguard Materials and Invesco SP
0.94 | Correlation Coefficient |
Almost no diversification
The 3 months correlation between Vanguard and Invesco is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Materials Index and Invesco SP 500 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP 500 and Vanguard Materials 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 Vanguard Materials Index 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 500 has no effect on the direction of Vanguard Materials i.e., Vanguard Materials and Invesco SP go up and down completely randomly.
Pair Corralation between Vanguard Materials and Invesco SP
Considering the 90-day investment horizon Vanguard Materials Index is expected to generate 0.94 times more return on investment than Invesco SP. However, Vanguard Materials Index is 1.06 times less risky than Invesco SP. It trades about 0.1 of its potential returns per unit of risk. Invesco SP 500 is currently generating about 0.06 per unit of risk. If you would invest 20,213 in Vanguard Materials Index on August 28, 2024 and sell it today you would earn a total of 1,089 from holding Vanguard Materials Index or generate 5.39% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Very Strong |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Materials Index vs. Invesco SP 500
Performance |
| Timeline |
| Vanguard Materials Index |
| Invesco SP 500 |
Vanguard Materials and Invesco SP Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Materials and Invesco SP
The main advantage of trading using opposite Vanguard Materials and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Materials 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 Vanguard Materials Index and Invesco SP 500 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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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 Performance Analysis module to check effects of mean-variance optimization against your current asset allocation.
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