Correlation Between Invesco DB and VanEck Steel

Can any of the company-specific risk be diversified away by investing in both Invesco DB and VanEck Steel 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 Steel 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 Steel ETF, you can compare the effects of market volatilities on Invesco DB and VanEck Steel 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 Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DB and VanEck Steel.

Diversification Opportunities for Invesco DB and VanEck Steel

0.71

Correlation Coefficient

Invesco DB  VanEck Steel

Poor diversification

The 3 months correlation between Invesco and VanEck is 0.71. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DB Agriculture and VanEck Steel ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Steel 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 Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Steel ETF has no effect on the direction of Invesco DB i.e., Invesco DB and VanEck Steel go up and down completely randomly.

Pair Corralation between Invesco DB and VanEck Steel

Considering the 90-day investment horizon Invesco DB is expected to generate 1.43 times less return on investment than VanEck Steel. But when comparing it to its historical volatility, Invesco DB Agriculture is 1.79 times less risky than VanEck Steel. It trades about 0.16 of its potential returns per unit of risk. VanEck Steel ETF is currently generating about 0.13 of returns per unit of risk over similar time horizon. If you would invest  6,334  in VanEck Steel ETF on September 1, 2024 and sell it today you would earn a total of  797.00  from holding VanEck Steel ETF or generate 12.58% return on investment over 90 days.

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

Invesco DB Agriculture  vs.  VanEck Steel ETF

Invesco DB Agriculture

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Agriculture are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Invesco DB may actually be approaching a critical reversion point that can send shares even higher in December 2024.

VanEck Steel ETF

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Steel ETF are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady essential indicators, VanEck Steel showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco DB and VanEck Steel

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

The idea behind Invesco DB Agriculture and VanEck Steel 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.

Check out your portfolio center.

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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.