Correlation Between Invesco SP and Schwab Emerging

Can any of the company-specific risk be diversified away by investing in both Invesco SP and Schwab Emerging 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 SP and Schwab Emerging into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Invesco SP 500 and Schwab Emerging Markets, you can compare the effects of market volatilities on Invesco SP and Schwab Emerging 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 SP with a short position of Schwab Emerging. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco SP and Schwab Emerging.

Diversification Opportunities for Invesco SP and Schwab Emerging

0.9

Correlation Coefficient

Invesco SP  Schwab Emerging

Almost no diversification

The 3 months correlation between Invesco and Schwab is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP 500 and Schwab Emerging Markets in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Schwab Emerging Markets and Invesco SP 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 SP 500 are associated (or correlated) with Schwab Emerging. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Schwab Emerging Markets has no effect on the direction of Invesco SP i.e., Invesco SP and Schwab Emerging go up and down completely randomly.

Pair Corralation between Invesco SP and Schwab Emerging

Given the investment horizon of 90 days Invesco SP 500 is expected to generate 1.11 times more return on investment than Schwab Emerging. However, Invesco SP is 1.11 times more volatile than Schwab Emerging Markets. It trades about 0.05 of its potential returns per unit of risk. Schwab Emerging Markets is currently generating about 0.03 per unit of risk. If you would invest  7,992  in Invesco SP 500 on January 31, 2024 and sell it today you would earn a total of  2,296  from holding Invesco SP 500 or generate 28.73% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Invesco SP 500  vs.  Schwab Emerging Markets

Invesco SP 500

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP 500 are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Schwab Emerging Markets

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Emerging Markets are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of rather uncertain technical indicators, Schwab Emerging may actually be approaching a critical reversion point that can send shares even higher in May 2024.

Pair Trading with Invesco SP and Schwab Emerging

The main advantage of trading using opposite Invesco SP and Schwab Emerging positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco SP position performs unexpectedly, Schwab Emerging 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 Schwab Emerging will offset losses from the drop in Schwab Emerging's long position.

The idea behind Invesco SP 500 and Schwab Emerging Markets 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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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..