Correlation Between Invesco Municipal and Invesco Select
Can any of the company-specific risk be diversified away by investing in both Invesco Municipal and Invesco Select 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 Municipal and Invesco Select into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Invesco Municipal Income and Invesco Select Risk, you can compare the effects of market volatilities on Invesco Municipal and Invesco Select 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 Municipal with a short position of Invesco Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Municipal and Invesco Select.
Diversification Opportunities for Invesco Municipal and Invesco Select
0.72 | Correlation Coefficient |
Poor diversification
The 3 months correlation between Invesco and Invesco is 0.72. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Municipal Income and Invesco Select Risk in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Select Risk and Invesco Municipal 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 Municipal Income are associated (or correlated) with Invesco Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Select Risk has no effect on the direction of Invesco Municipal i.e., Invesco Municipal and Invesco Select go up and down completely randomly.
Pair Corralation between Invesco Municipal and Invesco Select
Assuming the 90 days horizon Invesco Municipal is expected to generate 1.17 times less return on investment than Invesco Select. But when comparing it to its historical volatility, Invesco Municipal Income is 1.11 times less risky than Invesco Select. It trades about 0.12 of its potential returns per unit of risk. Invesco Select Risk is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest 855.00 in Invesco Select Risk on August 24, 2024 and sell it today you would earn a total of 37.00 from holding Invesco Select Risk or generate 4.33% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Significant |
| Accuracy | 100.0% |
| Values | Daily Returns |
Invesco Municipal Income vs. Invesco Select Risk
Performance |
| Timeline |
| Invesco Municipal Income |
| Invesco Select Risk |
Invesco Municipal and Invesco Select Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with Invesco Municipal and Invesco Select
The main advantage of trading using opposite Invesco Municipal and Invesco Select positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco Municipal position performs unexpectedly, Invesco Select 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 Select will offset losses from the drop in Invesco Select's long position.The idea behind Invesco Municipal Income and Invesco Select Risk 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.
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