Correlation Between Principal Quality and Invesco SP

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

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

Diversification Opportunities for Principal Quality and Invesco SP

0.9

Correlation Coefficient

Principal Quality  Invesco SP

Almost no diversification

The 3 months correlation between Principal and Invesco is 0.9. Overlapping area represents the amount of risk that can be diversified away by holding Principal Quality ETF and Invesco SP SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco SP SmallCap and Principal Quality 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 Principal Quality ETF 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 SmallCap has no effect on the direction of Principal Quality i.e., Principal Quality and Invesco SP go up and down completely randomly.

Pair Corralation between Principal Quality and Invesco SP

Given the investment horizon of 90 days Principal Quality is expected to generate 1.43 times less return on investment than Invesco SP. But when comparing it to its historical volatility, Principal Quality ETF is 1.47 times less risky than Invesco SP. It trades about 0.18 of its potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.18 of returns per unit of risk over similar time horizon. If you would invest  12,091  in Invesco SP SmallCap on May 4, 2025 and sell it today you would earn a total of  1,729  from holding Invesco SP SmallCap or generate 14.3% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.41%
Values	Daily Returns

Principal Quality ETF  vs.  Invesco SP SmallCap

Principal Quality ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Principal Quality ETF are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak technical and fundamental indicators, Principal Quality may actually be approaching a critical reversion point that can send shares even higher in September 2025.

Invesco SP SmallCap

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Despite fairly fragile fundamental indicators, Invesco SP demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Principal Quality and Invesco SP

The main advantage of trading using opposite Principal Quality and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Principal Quality 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 Principal Quality ETF and Invesco SP SmallCap 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 Cryptocurrency Center module to build and monitor diversified portfolio of extremely risky digital assets and cryptocurrency.