Correlation Between Technology Select and Invesco Next

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

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

Diversification Opportunities for Technology Select and Invesco Next

0.99

Correlation Coefficient

Technology Select  Invesco Next

No risk reduction

The 3 months correlation between Technology and Invesco is 0.99. Overlapping area represents the amount of risk that can be diversified away by holding Technology Select Sector and Invesco Next Gen in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Next Gen and Technology Select 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 Technology Select Sector are associated (or correlated) with Invesco Next. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Next Gen has no effect on the direction of Technology Select i.e., Technology Select and Invesco Next go up and down completely randomly.

Pair Corralation between Technology Select and Invesco Next

Considering the 90-day investment horizon Technology Select Sector is expected to generate 1.31 times more return on investment than Invesco Next. However, Technology Select is 1.31 times more volatile than Invesco Next Gen. It trades about 0.25 of its potential returns per unit of risk. Invesco Next Gen is currently generating about 0.26 per unit of risk. If you would invest  18,237  in Technology Select Sector on February 3, 2025 and sell it today you would earn a total of  3,424  from holding Technology Select Sector or generate 18.78% return on investment over 90 days.

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

Technology Select Sector  vs.  Invesco Next Gen

Technology Select Sector

Risk-Adjusted Performance

Very Weak

Over the last 90 days Technology Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent essential indicators, Technology Select is not utilizing all of its potentials. The newest stock price mess, may contribute to short-term losses for the institutional investors.

Invesco Next Gen

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Next Gen has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, Invesco Next is not utilizing all of its potentials. The current stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Technology Select and Invesco Next

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

The idea behind Technology Select Sector and Invesco Next Gen 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 ETFs module to find actively traded Exchange Traded Funds (ETF) from around the world.