Correlation Between Invesco DB and VanEck Agribusiness

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

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

Diversification Opportunities for Invesco DB and VanEck Agribusiness

0.08

Correlation Coefficient

Invesco DB  VanEck Agribusiness

Significant diversification

The 3 months correlation between Invesco and VanEck is 0.08. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DB Agriculture and VanEck Agribusiness ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Agribusiness ETF and Invesco DB 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 DB Agriculture are associated (or correlated) with VanEck Agribusiness. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Agribusiness ETF has no effect on the direction of Invesco DB i.e., Invesco DB and VanEck Agribusiness go up and down completely randomly.

Pair Corralation between Invesco DB and VanEck Agribusiness

Considering the 90-day investment horizon Invesco DB Agriculture is expected to generate 0.95 times more return on investment than VanEck Agribusiness. However, Invesco DB Agriculture is 1.05 times less risky than VanEck Agribusiness. It trades about 0.08 of its potential returns per unit of risk. VanEck Agribusiness ETF is currently generating about -0.04 per unit of risk. If you would invest  2,552  in Invesco DB Agriculture on December 1, 2024 and sell it today you would earn a total of  97.00  from holding Invesco DB Agriculture or generate 3.8% return on investment over 90 days.

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

Invesco DB Agriculture  vs.  VanEck Agribusiness ETF

Invesco DB Agriculture

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Agriculture are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat strong fundamental drivers, Invesco DB is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

VanEck Agribusiness ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days VanEck Agribusiness ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy basic indicators, VanEck Agribusiness is not utilizing all of its potentials. The current stock price disarray, may contribute to short-term losses for the investors.

Pair Trading with Invesco DB and VanEck Agribusiness

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

The idea behind Invesco DB Agriculture and VanEck Agribusiness ETF 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.