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 Oil, 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

0.39

Correlation Coefficient

IShares Energy  Invesco Dynamic

Weak diversification

The 3 months correlation between IShares and Invesco is 0.39. Overlapping area represents the amount of risk that can be diversified away by holding iShares Energy ETF and Invesco Dynamic Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Oil 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 Oil 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 0.77 times more return on investment than Invesco Dynamic. However, iShares Energy ETF is 1.3 times less risky than Invesco Dynamic. It trades about 0.14 of its potential returns per unit of risk. Invesco Dynamic Oil is currently generating about -0.02 per unit of risk. If you would invest  4,464  in iShares Energy ETF on December 27, 2024 and sell it today you would earn a total of  476.00  from holding iShares Energy ETF or generate 10.66% return on investment over 90 days.

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

iShares Energy ETF  vs.  Invesco Dynamic Oil

iShares Energy ETF

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Energy ETF are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, IShares Energy may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Invesco Dynamic Oil

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco Dynamic Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Invesco Dynamic is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

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 Oil 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 Technical Analysis module to check basic technical indicators and analysis based on most latest market data.