Correlation Between Invesco DWA and Invesco FTSE

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

Diversification Opportunities for Invesco DWA and Invesco FTSE

-0.54

Correlation Coefficient

Invesco DWA  Invesco FTSE

Excellent diversification

The 3 months correlation between Invesco and Invesco is -0.54. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA SmallCap and Invesco FTSE RAFI in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco FTSE RAFI 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 Invesco FTSE. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco FTSE RAFI has no effect on the direction of Invesco DWA i.e., Invesco DWA and Invesco FTSE go up and down completely randomly.

Pair Corralation between Invesco DWA and Invesco FTSE

Given the investment horizon of 90 days Invesco DWA SmallCap is expected to under-perform the Invesco FTSE. In addition to that, Invesco DWA is 1.25 times more volatile than Invesco FTSE RAFI. It trades about -0.35 of its total potential returns per unit of risk. Invesco FTSE RAFI is currently generating about -0.02 per unit of volatility. If you would invest  2,060  in Invesco FTSE RAFI on October 1, 2024 and sell it today you would lose (12.00) from holding Invesco FTSE RAFI or give up 0.58% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	95.24%
Values	Daily Returns

Invesco DWA SmallCap  vs.  Invesco FTSE RAFI

Invesco DWA SmallCap

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA SmallCap are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable basic indicators, Invesco DWA is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Invesco FTSE RAFI

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco FTSE RAFI has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest fragile performance, the Etf's basic indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the Etf traders.

Pair Trading with Invesco DWA and Invesco FTSE

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

The idea behind Invesco DWA SmallCap and Invesco FTSE RAFI 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.