Correlation Between IShares Regional and Invesco DWA

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

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

Diversification Opportunities for IShares Regional and Invesco DWA

0.96

Correlation Coefficient

IShares Regional  Invesco DWA

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.96. Overlapping area represents the amount of risk that can be diversified away by holding iShares Regional Banks and Invesco DWA Financial in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Financial and IShares Regional 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 iShares Regional Banks are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Financial has no effect on the direction of IShares Regional i.e., IShares Regional and Invesco DWA go up and down completely randomly.

Pair Corralation between IShares Regional and Invesco DWA

Considering the 90-day investment horizon iShares Regional Banks is expected to under-perform the Invesco DWA. But the etf apears to be less risky and, when comparing its historical volatility, iShares Regional Banks is 1.17 times less risky than Invesco DWA. The etf trades about -0.07 of its potential returns per unit of risk. The Invesco DWA Financial is currently generating about -0.04 of returns per unit of risk over similar time horizon. If you would invest  5,656  in Invesco DWA Financial on December 28, 2024 and sell it today you would lose (268.00) from holding Invesco DWA Financial or give up 4.74% of portfolio value over 90 days.

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

iShares Regional Banks  vs.  Invesco DWA Financial

iShares Regional Banks

Risk-Adjusted Performance

Very Weak

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

Invesco DWA Financial

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Financial has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong technical and fundamental indicators, Invesco DWA is not utilizing all of its potentials. The current stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with IShares Regional and Invesco DWA

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

The idea behind iShares Regional Banks and Invesco DWA Financial 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 Fundamental Analysis module to view fundamental data based on most recent published financial statements.