Correlation Between IShares Financial and Invesco DWA

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

Diversification Opportunities for IShares Financial and Invesco DWA

0.91

Correlation Coefficient

IShares Financial  Invesco DWA

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.91. Overlapping area represents the amount of risk that can be diversified away by holding iShares Financial Services 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 Financial 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 Financial Services 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 Financial i.e., IShares Financial and Invesco DWA go up and down completely randomly.

Pair Corralation between IShares Financial and Invesco DWA

Considering the 90-day investment horizon iShares Financial Services is expected to generate 0.72 times more return on investment than Invesco DWA. However, iShares Financial Services is 1.39 times less risky than Invesco DWA. It trades about 0.03 of its potential returns per unit of risk. Invesco DWA Financial is currently generating about -0.03 per unit of risk. If you would invest  7,895  in iShares Financial Services on December 25, 2024 and sell it today you would earn a total of  124.00  from holding iShares Financial Services or generate 1.57% return on investment over 90 days.

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

iShares Financial Services  vs.  Invesco DWA Financial

iShares Financial

Risk-Adjusted Performance

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Financial Services are ranked lower than 2 (%) of all global equities and portfolios over the last 90 days. Despite nearly stable basic indicators, IShares Financial is not utilizing all of its potentials. The current stock price disturbance, may contribute to mid-run losses for the stockholders.

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 Financial and Invesco DWA

The main advantage of trading using opposite IShares Financial and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Financial 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 Financial Services 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.