Correlation Between Invesco DWA and AdvisorShares Dorsey

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

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

Diversification Opportunities for Invesco DWA and AdvisorShares Dorsey

0.37

Correlation Coefficient

Invesco DWA  AdvisorShares Dorsey

Weak diversification

The 3 months correlation between Invesco and AdvisorShares is 0.37. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA SmallCap and AdvisorShares Dorsey Wright in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AdvisorShares Dorsey and Invesco DWA 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 DWA SmallCap are associated (or correlated) with AdvisorShares Dorsey. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AdvisorShares Dorsey has no effect on the direction of Invesco DWA i.e., Invesco DWA and AdvisorShares Dorsey go up and down completely randomly.

Pair Corralation between Invesco DWA and AdvisorShares Dorsey

Given the investment horizon of 90 days Invesco DWA SmallCap is expected to under-perform the AdvisorShares Dorsey. In addition to that, Invesco DWA is 1.16 times more volatile than AdvisorShares Dorsey Wright. It trades about -0.33 of its total potential returns per unit of risk. AdvisorShares Dorsey Wright is currently generating about 0.01 per unit of volatility. If you would invest  6,903  in AdvisorShares Dorsey Wright on October 4, 2024 and sell it today you would lose (1.00) from holding AdvisorShares Dorsey Wright or give up 0.01% of portfolio value over 90 days.

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

Invesco DWA SmallCap  vs.  AdvisorShares Dorsey Wright

Invesco DWA SmallCap

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Invesco DWA SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

AdvisorShares Dorsey

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in AdvisorShares Dorsey Wright are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. Even with relatively abnormal fundamental indicators, AdvisorShares Dorsey may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Pair Trading with Invesco DWA and AdvisorShares Dorsey

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

The idea behind Invesco DWA SmallCap and AdvisorShares Dorsey Wright 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 Portfolio Center module to all portfolio management and optimization tools to improve performance of your portfolios.