Correlation Between Invesco European and Dreyfus Natural

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

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

Diversification Opportunities for Invesco European and Dreyfus Natural

0.75

Correlation Coefficient

Invesco European  Dreyfus Natural

Poor diversification

The 3 months correlation between Invesco and Dreyfus is 0.75. Overlapping area represents the amount of risk that can be diversified away by holding Invesco European Growth and Dreyfus Natural Resources in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Dreyfus Natural Resources and Invesco European 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 Invesco European Growth are associated (or correlated) with Dreyfus Natural. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Dreyfus Natural Resources has no effect on the direction of Invesco European i.e., Invesco European and Dreyfus Natural go up and down completely randomly.

Pair Corralation between Invesco European and Dreyfus Natural

Assuming the 90 days horizon Invesco European Growth is expected to under-perform the Dreyfus Natural. But the mutual fund apears to be less risky and, when comparing its historical volatility, Invesco European Growth is 1.11 times less risky than Dreyfus Natural. The mutual fund trades about -0.21 of its potential returns per unit of risk. The Dreyfus Natural Resources is currently generating about -0.15 of returns per unit of risk over similar time horizon. If you would invest  4,393  in Dreyfus Natural Resources on October 6, 2024 and sell it today you would lose (627.00) from holding Dreyfus Natural Resources or give up 14.27% of portfolio value over 90 days.

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

Invesco European Growth  vs.  Dreyfus Natural Resources

Invesco European Growth

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco European Growth has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's basic indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Dreyfus Natural Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Dreyfus Natural Resources has generated negative risk-adjusted returns adding no value to fund investors. In spite of weak performance in the last few months, the Fund's fundamental indicators remain fairly strong which may send shares a bit higher in February 2025. The current disturbance may also be a sign of long term up-swing for the fund investors.

Pair Trading with Invesco European and Dreyfus Natural

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

The idea behind Invesco European Growth and Dreyfus Natural Resources 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 Equity Valuation module to check real value of public entities based on technical and fundamental data.