Correlation Between IShares Energy and Invesco Dynamic

Can any of the company-specific risk be diversified away by investing in both IShares Energy 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 Energy 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 Energy ETF and Invesco Dynamic Energy, you can compare the effects of market volatilities on IShares Energy 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 Energy with a short position of Invesco Dynamic. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Energy and Invesco Dynamic.

Diversification Opportunities for IShares Energy and Invesco Dynamic

0.94

Correlation Coefficient

IShares Energy  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 Energy ETF 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 Energy 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 Energy ETF 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 Energy i.e., IShares Energy and Invesco Dynamic go up and down completely randomly.

Pair Corralation between IShares Energy and Invesco Dynamic

Considering the 90-day investment horizon iShares Energy ETF is expected to generate 0.8 times more return on investment than Invesco Dynamic. However, iShares Energy ETF is 1.25 times less risky than Invesco Dynamic. It trades about -0.05 of its potential returns per unit of risk. Invesco Dynamic Energy is currently generating about -0.08 per unit of risk. If you would invest  5,012  in iShares Energy ETF on November 28, 2024 and sell it today you would lose (207.00) from holding iShares Energy ETF or give up 4.13% of portfolio value over 90 days.

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

iShares Energy ETF  vs.  Invesco Dynamic Energy

iShares Energy ETF

Risk-Adjusted Performance

Very Weak

Over the last 90 days iShares Energy ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, IShares Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

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 Energy and Invesco Dynamic

The main advantage of trading using opposite IShares Energy and Invesco Dynamic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Energy 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 Energy ETF 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.