Correlation Between IShares Morningstar and Invesco DWA

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

Diversification Opportunities for IShares Morningstar and Invesco DWA

0.95

Correlation Coefficient

IShares Morningstar  Invesco DWA

Almost no diversification

The 3 months correlation between IShares and Invesco is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding iShares Morningstar Small Cap and Invesco DWA SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA SmallCap and IShares Morningstar 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 Morningstar Small Cap 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 SmallCap has no effect on the direction of IShares Morningstar i.e., IShares Morningstar and Invesco DWA go up and down completely randomly.

Pair Corralation between IShares Morningstar and Invesco DWA

Considering the 90-day investment horizon IShares Morningstar is expected to generate 1.06 times less return on investment than Invesco DWA. But when comparing it to its historical volatility, iShares Morningstar Small Cap is 1.39 times less risky than Invesco DWA. It trades about 0.16 of its potential returns per unit of risk. Invesco DWA SmallCap is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  9,180  in Invesco DWA SmallCap on August 30, 2024 and sell it today you would earn a total of  1,122  from holding Invesco DWA SmallCap or generate 12.22% return on investment over 90 days.

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

iShares Morningstar Small Cap  vs.  Invesco DWA SmallCap

iShares Morningstar

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Morningstar Small Cap are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Despite quite fragile forward-looking signals, IShares Morningstar may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Invesco DWA SmallCap

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA SmallCap are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in December 2024.

Pair Trading with IShares Morningstar and Invesco DWA

The main advantage of trading using opposite IShares Morningstar and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Morningstar 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 Morningstar Small Cap and Invesco DWA SmallCap 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 Global Correlations module to find global opportunities by holding instruments from different markets.