Correlation Between InfraCap MLP and Invesco DWA

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

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

Diversification Opportunities for InfraCap MLP and Invesco DWA

0.18

Correlation Coefficient

InfraCap MLP  Invesco DWA

Average diversification

The 3 months correlation between InfraCap and Invesco is 0.18. Overlapping area represents the amount of risk that can be diversified away by holding InfraCap MLP ETF and Invesco DWA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Financial and InfraCap MLP 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 InfraCap MLP ETF are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Financial has no effect on the direction of InfraCap MLP i.e., InfraCap MLP and Invesco DWA go up and down completely randomly.

Pair Corralation between InfraCap MLP and Invesco DWA

Given the investment horizon of 90 days InfraCap MLP ETF is expected to generate 0.82 times more return on investment than Invesco DWA. However, InfraCap MLP ETF is 1.22 times less risky than Invesco DWA. It trades about 0.16 of its potential returns per unit of risk. Invesco DWA Financial is currently generating about -0.06 per unit of risk. If you would invest  4,170  in InfraCap MLP ETF on December 29, 2024 and sell it today you would earn a total of  594.00  from holding InfraCap MLP ETF or generate 14.24% return on investment over 90 days.

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

InfraCap MLP ETF  vs.  Invesco DWA Financial

InfraCap MLP ETF

Risk-Adjusted Performance

Good

Compared to the overall equity markets, risk-adjusted returns on investments in InfraCap MLP ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, InfraCap MLP sustained solid returns over the last few months and may actually be approaching a breakup point.

Invesco DWA Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Invesco DWA is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with InfraCap MLP and Invesco DWA

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

The idea behind InfraCap MLP ETF and Invesco DWA Financial 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 Sectors module to list of equity sectors categorizing publicly traded companies based on their primary business activities.