Correlation Between NATO and Invesco DWA

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

By analyzing existing cross correlation between NATO and Invesco DWA Utilities, you can compare the effects of market volatilities on NATO 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 NATO with a short position of Invesco DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of NATO and Invesco DWA.

Diversification Opportunities for NATO and Invesco DWA

0.47

Correlation Coefficient

NATO  Invesco DWA

Very weak diversification

The 3 months correlation between NATO and Invesco is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding NATO and Invesco DWA Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Utilities and NATO 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 NATO 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 Utilities has no effect on the direction of NATO i.e., NATO and Invesco DWA go up and down completely randomly.

Pair Corralation between NATO and Invesco DWA

Given the investment horizon of 90 days NATO is expected to generate 1.21 times less return on investment than Invesco DWA. In addition to that, NATO is 1.4 times more volatile than Invesco DWA Utilities. It trades about 0.05 of its total potential returns per unit of risk. Invesco DWA Utilities is currently generating about 0.09 per unit of volatility. If you would invest  3,591  in Invesco DWA Utilities on September 13, 2024 and sell it today you would earn a total of  412.00  from holding Invesco DWA Utilities or generate 11.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	30.14%
Values	Daily Returns

NATO  vs.  Invesco DWA Utilities

NATO

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in NATO are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of very healthy basic indicators, NATO is not utilizing all of its potentials. The recent stock price disarray, may contribute to short-term losses for the investors.

Invesco DWA Utilities

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Utilities are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with NATO and Invesco DWA

The main advantage of trading using opposite NATO and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if NATO 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 NATO and Invesco DWA Utilities 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 Transaction History module to view history of all your transactions and understand their impact on performance.