Correlation Between VanEck Natural and Invesco DB

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

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

Diversification Opportunities for VanEck Natural and Invesco DB

0.73

Correlation Coefficient

VanEck Natural  Invesco DB

Poor diversification

The 3 months correlation between VanEck and Invesco is 0.73. Overlapping area represents the amount of risk that can be diversified away by holding VanEck Natural Resources and Invesco DB Base in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DB Base and VanEck Natural 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 VanEck Natural Resources are associated (or correlated) with Invesco DB. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DB Base has no effect on the direction of VanEck Natural i.e., VanEck Natural and Invesco DB go up and down completely randomly.

Pair Corralation between VanEck Natural and Invesco DB

Considering the 90-day investment horizon VanEck Natural Resources is expected to generate 1.06 times more return on investment than Invesco DB. However, VanEck Natural is 1.06 times more volatile than Invesco DB Base. It trades about 0.23 of its potential returns per unit of risk. Invesco DB Base is currently generating about 0.11 per unit of risk. If you would invest  4,524  in VanEck Natural Resources on December 20, 2024 and sell it today you would earn a total of  504.00  from holding VanEck Natural Resources or generate 11.14% return on investment over 90 days.

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

VanEck Natural Resources  vs.  Invesco DB Base

VanEck Natural Resources

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Natural Resources are ranked lower than 17 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain basic indicators, VanEck Natural may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Invesco DB Base

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DB Base are ranked lower than 8 (%) 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.

Pair Trading with VanEck Natural and Invesco DB

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

The idea behind VanEck Natural Resources and Invesco DB Base 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.