Correlation Between ARK Fintech and Invesco DWA

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

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

Diversification Opportunities for ARK Fintech and Invesco DWA

0.76

Correlation Coefficient

ARK Fintech  Invesco DWA

Poor diversification

The 3 months correlation between ARK and Invesco is 0.76. Overlapping area represents the amount of risk that can be diversified away by holding ARK Fintech Innovation and Invesco DWA Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Utilities and ARK Fintech 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 ARK Fintech Innovation 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 Utilities has no effect on the direction of ARK Fintech i.e., ARK Fintech and Invesco DWA go up and down completely randomly.

Pair Corralation between ARK Fintech and Invesco DWA

Given the investment horizon of 90 days ARK Fintech Innovation is expected to generate 1.85 times more return on investment than Invesco DWA. However, ARK Fintech is 1.85 times more volatile than Invesco DWA Utilities. It trades about 0.31 of its potential returns per unit of risk. Invesco DWA Utilities is currently generating about 0.04 per unit of risk. If you would invest  2,843  in ARK Fintech Innovation on September 13, 2024 and sell it today you would earn a total of  1,117  from holding ARK Fintech Innovation or generate 39.29% return on investment over 90 days.

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

ARK Fintech Innovation  vs.  Invesco DWA Utilities

ARK Fintech Innovation

Risk-Adjusted Performance

24 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in ARK Fintech Innovation are ranked lower than 24 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent forward-looking signals, ARK Fintech reported solid returns over the last few months and may actually be approaching a breakup point.

Invesco DWA Utilities

Risk-Adjusted Performance

3 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Utilities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with ARK Fintech and Invesco DWA

The main advantage of trading using opposite ARK Fintech and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ARK Fintech 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 ARK Fintech Innovation and Invesco DWA Utilities 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 Instant Ratings module to determine any equity ratings based on digital recommendations. Macroaxis instant equity ratings are based on combination of fundamental analysis and risk-adjusted market performance.