Correlation Between Driven Brands and Invesco SP

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

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

Diversification Opportunities for Driven Brands and Invesco SP

0.77

Correlation Coefficient

Driven Brands  Invesco SP

Poor diversification

The 3 months correlation between Driven and Invesco is 0.77. Overlapping area represents the amount of risk that can be diversified away by holding Driven Brands Holdings 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 Driven Brands 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 Driven Brands Holdings 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 Driven Brands i.e., Driven Brands and Invesco SP go up and down completely randomly.

Pair Corralation between Driven Brands and Invesco SP

Given the investment horizon of 90 days Driven Brands Holdings is expected to under-perform the Invesco SP. In addition to that, Driven Brands is 3.13 times more volatile than Invesco SP 500. It trades about -0.03 of its total potential returns per unit of risk. Invesco SP 500 is currently generating about 0.08 per unit of volatility. If you would invest  3,703  in Invesco SP 500 on August 23, 2024 and sell it today you would earn a total of  1,611  from holding Invesco SP 500 or generate 43.51% return on investment over 90 days.

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

Driven Brands Holdings  vs.  Invesco SP 500

Driven Brands Holdings

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Driven Brands Holdings are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Driven Brands may actually be approaching a critical reversion point that can send shares even higher in December 2024.

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. In spite of very conflicting basic indicators, Invesco SP may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with Driven Brands and Invesco SP

The main advantage of trading using opposite Driven Brands and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Driven Brands 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 Driven Brands Holdings 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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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 Correlation Analysis module to reduce portfolio risk simply by holding instruments which are not perfectly correlated.