Correlation Between IShares Oil and Invesco Dynamic

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

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

Diversification Opportunities for IShares Oil and Invesco Dynamic

0.94

Correlation Coefficient

IShares Oil  Invesco Dynamic

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding iShares Oil Equipment and Invesco Dynamic Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Energy and IShares Oil 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 Oil Equipment are associated (or correlated) with Invesco Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Dynamic Energy has no effect on the direction of IShares Oil i.e., IShares Oil and Invesco Dynamic go up and down completely randomly.

Pair Corralation between IShares Oil and Invesco Dynamic

Considering the 90-day investment horizon iShares Oil Equipment is expected to under-perform the Invesco Dynamic. But the etf apears to be less risky and, when comparing its historical volatility, iShares Oil Equipment is 1.2 times less risky than Invesco Dynamic. The etf trades about -0.16 of its potential returns per unit of risk. The Invesco Dynamic Energy is currently generating about -0.11 of returns per unit of risk over similar time horizon. If you would invest  3,098  in Invesco Dynamic Energy on November 28, 2024 and sell it today you would lose (138.00) from holding Invesco Dynamic Energy or give up 4.45% of portfolio value over 90 days.

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

iShares Oil Equipment  vs.  Invesco Dynamic Energy

iShares Oil Equipment

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Oil Equipment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's technical and fundamental indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Invesco Dynamic Energy

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Dynamic Energy has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest sluggish performance, the Etf's basic indicators remain sound and the latest tumult on Wall Street may also be a sign of longer-term gains for the fund shareholders.

Pair Trading with IShares Oil and Invesco Dynamic

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

The idea behind iShares Oil Equipment and Invesco Dynamic Energy 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 FinTech Suite module to use AI to screen and filter profitable investment opportunities.