Correlation Between Vanguard Financials and Invesco KBW
Can any of the company-specific risk be diversified away by investing in both Vanguard Financials and Invesco KBW 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 Financials and Invesco KBW into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Vanguard Financials Index and Invesco KBW High, you can compare the effects of market volatilities on Vanguard Financials and Invesco KBW 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 Financials with a short position of Invesco KBW. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Financials and Invesco KBW.
Diversification Opportunities for Vanguard Financials and Invesco KBW
0.67 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Vanguard and Invesco is 0.67. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Financials Index and Invesco KBW High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco KBW High and Vanguard Financials 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 Financials Index are associated (or correlated) with Invesco KBW. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco KBW High has no effect on the direction of Vanguard Financials i.e., Vanguard Financials and Invesco KBW go up and down completely randomly.
Pair Corralation between Vanguard Financials and Invesco KBW
Considering the 90-day investment horizon Vanguard Financials Index is expected to generate 0.82 times more return on investment than Invesco KBW. However, Vanguard Financials Index is 1.23 times less risky than Invesco KBW. It trades about 0.15 of its potential returns per unit of risk. Invesco KBW High is currently generating about 0.05 per unit of risk. If you would invest 7,784 in Vanguard Financials Index on August 31, 2024 and sell it today you would earn a total of 4,836 from holding Vanguard Financials Index or generate 62.13% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Vanguard Financials Index vs. Invesco KBW High
Performance |
| Timeline |
| Vanguard Financials Index |
| Invesco KBW High |
Vanguard Financials and Invesco KBW Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Vanguard Financials and Invesco KBW
The main advantage of trading using opposite Vanguard Financials and Invesco KBW positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard Financials position performs unexpectedly, Invesco KBW 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 KBW will offset losses from the drop in Invesco KBW's long position.| Vanguard Financials vs. Vanguard Industrials Index | Vanguard Financials vs. Vanguard Consumer Discretionary | Vanguard Financials vs. Vanguard Materials Index | Vanguard Financials vs. Vanguard Health Care |
| Invesco KBW vs. Financial Select Sector | Invesco KBW vs. Vanguard Financials Index | Invesco KBW vs. SPDR SP Bank | Invesco KBW vs. iShares Financials ETF |
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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.
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