Correlation Between Invesco DB and WisdomTree Continuous

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

By analyzing existing cross correlation between Invesco DB Precious and WisdomTree Continuous Commodity, you can compare the effects of market volatilities on Invesco DB and WisdomTree Continuous 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 WisdomTree Continuous. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DB and WisdomTree Continuous.

Diversification Opportunities for Invesco DB and WisdomTree Continuous

0.57

Correlation Coefficient

Invesco DB  WisdomTree Continuous

Very weak diversification

The 3 months correlation between Invesco and WisdomTree is 0.57. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DB Precious and WisdomTree Continuous Commodit in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on WisdomTree Continuous 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 Precious are associated (or correlated) with WisdomTree Continuous. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of WisdomTree Continuous has no effect on the direction of Invesco DB i.e., Invesco DB and WisdomTree Continuous go up and down completely randomly.

Pair Corralation between Invesco DB and WisdomTree Continuous

Considering the 90-day investment horizon Invesco DB Precious is expected to generate 1.47 times more return on investment than WisdomTree Continuous. However, Invesco DB is 1.47 times more volatile than WisdomTree Continuous Commodity. It trades about 0.29 of its potential returns per unit of risk. WisdomTree Continuous Commodity is currently generating about 0.1 per unit of risk. If you would invest  6,030  in Invesco DB Precious on December 30, 2024 and sell it today you would earn a total of  1,040  from holding Invesco DB Precious or generate 17.25% return on investment over 90 days.

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

Invesco DB Precious  vs.  WisdomTree Continuous Commodit

Invesco DB Precious

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Precious are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental drivers, Invesco DB reported solid returns over the last few months and may actually be approaching a breakup point.

WisdomTree Continuous

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in WisdomTree Continuous Commodity are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, WisdomTree Continuous is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco DB and WisdomTree Continuous

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

The idea behind Invesco DB Precious and WisdomTree Continuous Commodity 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 Stocks Directory module to find actively traded stocks across global markets.