Correlation Between Invesco DWA and Cambria Shareholder

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

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

Diversification Opportunities for Invesco DWA and Cambria Shareholder

0.86

Correlation Coefficient

Invesco DWA  Cambria Shareholder

Very poor diversification

The 3 months correlation between Invesco and Cambria is 0.86. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Momentum and Cambria Shareholder Yield in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Cambria Shareholder Yield and Invesco DWA 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 Invesco DWA Momentum are associated (or correlated) with Cambria Shareholder. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Cambria Shareholder Yield has no effect on the direction of Invesco DWA i.e., Invesco DWA and Cambria Shareholder go up and down completely randomly.

Pair Corralation between Invesco DWA and Cambria Shareholder

Considering the 90-day investment horizon Invesco DWA Momentum is expected to generate 1.05 times more return on investment than Cambria Shareholder. However, Invesco DWA is 1.05 times more volatile than Cambria Shareholder Yield. It trades about 0.18 of its potential returns per unit of risk. Cambria Shareholder Yield is currently generating about 0.06 per unit of risk. If you would invest  10,083  in Invesco DWA Momentum on September 14, 2024 and sell it today you would earn a total of  1,254  from holding Invesco DWA Momentum or generate 12.44% return on investment over 90 days.

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

Invesco DWA Momentum  vs.  Cambria Shareholder Yield

Invesco DWA Momentum

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Momentum are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak fundamental indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Cambria Shareholder Yield

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Cambria Shareholder Yield are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Cambria Shareholder is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco DWA and Cambria Shareholder

The main advantage of trading using opposite Invesco DWA and Cambria Shareholder positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA position performs unexpectedly, Cambria Shareholder 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 Cambria Shareholder will offset losses from the drop in Cambria Shareholder's long position.

The idea behind Invesco DWA Momentum and Cambria Shareholder Yield 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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.