Correlation Between Invesco DWA and Fidelity Covington

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

By analyzing existing cross correlation between Invesco DWA Consumer and Fidelity Covington Trust, you can compare the effects of market volatilities on Invesco DWA and Fidelity Covington 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 Fidelity Covington. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and Fidelity Covington.

Diversification Opportunities for Invesco DWA and Fidelity Covington

0.46

Correlation Coefficient

Invesco DWA  Fidelity Covington

Very weak diversification

The 3 months correlation between Invesco and Fidelity is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Consumer and Fidelity Covington Trust in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Fidelity Covington Trust 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 Consumer are associated (or correlated) with Fidelity Covington. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Fidelity Covington Trust has no effect on the direction of Invesco DWA i.e., Invesco DWA and Fidelity Covington go up and down completely randomly.

Pair Corralation between Invesco DWA and Fidelity Covington

Considering the 90-day investment horizon Invesco DWA Consumer is expected to under-perform the Fidelity Covington. In addition to that, Invesco DWA is 1.4 times more volatile than Fidelity Covington Trust. It trades about -0.25 of its total potential returns per unit of risk. Fidelity Covington Trust is currently generating about -0.11 per unit of volatility. If you would invest  2,089  in Fidelity Covington Trust on December 4, 2024 and sell it today you would lose (65.00) from holding Fidelity Covington Trust or give up 3.11% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Invesco DWA Consumer  vs.  Fidelity Covington Trust

Invesco DWA Consumer

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Consumer has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of conflicting performance in the last few months, the Etf's technical and fundamental indicators remain fairly strong which may send shares a bit higher in April 2025. The current disturbance may also be a sign of long term up-swing for the ETF investors.

Fidelity Covington Trust

Risk-Adjusted Performance

Very Weak

Over the last 90 days Fidelity Covington Trust has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable technical indicators, Fidelity Covington is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Invesco DWA and Fidelity Covington

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

The idea behind Invesco DWA Consumer and Fidelity Covington Trust 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.

Check out your portfolio center.

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 Portfolio Dashboard module to portfolio dashboard that provides centralized access to all your investments.