Correlation Between VIIX and Invesco SP

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

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

Diversification Opportunities for VIIX and Invesco SP

-0.52

Correlation Coefficient

VIIX  Invesco SP

Excellent diversification

The 3 months correlation between VIIX and Invesco is -0.52. Overlapping area represents the amount of risk that can be diversified away by holding VIIX 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 VIIX 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 VIIX 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 VIIX i.e., VIIX and Invesco SP go up and down completely randomly.

Pair Corralation between VIIX and Invesco SP

Given the investment horizon of 90 days VIIX is expected to under-perform the Invesco SP. In addition to that, VIIX is 2.8 times more volatile than Invesco SP SmallCap. It trades about -0.15 of its total potential returns per unit of risk. Invesco SP SmallCap is currently generating about 0.05 per unit of volatility. If you would invest  4,144  in Invesco SP SmallCap on August 22, 2024 and sell it today you would earn a total of  1,125  from holding Invesco SP SmallCap or generate 27.15% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	32.26%
Values	Daily Returns

VIIX  vs.  Invesco SP SmallCap

VIIX

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days VIIX has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong forward indicators, VIIX is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Invesco SP SmallCap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP SmallCap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, Invesco SP is not utilizing all of its potentials. The latest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with VIIX and Invesco SP

The main advantage of trading using opposite VIIX and Invesco SP positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if VIIX 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 VIIX 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 Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.