Correlation Between Vanguard Industrials and Invesco Aerospace

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

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

Diversification Opportunities for Vanguard Industrials and Invesco Aerospace

0.93

Correlation Coefficient

Vanguard Industrials  Invesco Aerospace

Almost no diversification

The 3 months correlation between Vanguard and Invesco is 0.93. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Industrials Index and Invesco Aerospace Defense in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Aerospace Defense and Vanguard Industrials 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 Vanguard Industrials Index are associated (or correlated) with Invesco Aerospace. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Aerospace Defense has no effect on the direction of Vanguard Industrials i.e., Vanguard Industrials and Invesco Aerospace go up and down completely randomly.

Pair Corralation between Vanguard Industrials and Invesco Aerospace

Considering the 90-day investment horizon Vanguard Industrials Index is expected to generate 1.12 times more return on investment than Invesco Aerospace. However, Vanguard Industrials is 1.12 times more volatile than Invesco Aerospace Defense. It trades about 0.49 of its potential returns per unit of risk. Invesco Aerospace Defense is currently generating about 0.48 per unit of risk. If you would invest  24,292  in Vanguard Industrials Index on July 11, 2024 and sell it today you would earn a total of  1,686  from holding Vanguard Industrials Index or generate 6.94% return on investment over 90 days.

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

Vanguard Industrials Index  vs.  Invesco Aerospace Defense

Vanguard Industrials

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Industrials Index are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal forward indicators, Vanguard Industrials may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Invesco Aerospace Defense

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Aerospace Defense are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, Invesco Aerospace may actually be approaching a critical reversion point that can send shares even higher in November 2024.

Pair Trading with Vanguard Industrials and Invesco Aerospace

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

The idea behind Vanguard Industrials Index and Invesco Aerospace Defense 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 Balance Of Power module to check stock momentum by analyzing Balance Of Power indicator and other technical ratios.