Correlation Between Invesco Water and Vanguard Materials

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

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

Diversification Opportunities for Invesco Water and Vanguard Materials

0.74

Correlation Coefficient

Invesco Water  Vanguard Materials

Poor diversification

The 3 months correlation between Invesco and Vanguard is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Water Resources and Vanguard Materials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Materials Index and Invesco Water 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 Water Resources are associated (or correlated) with Vanguard Materials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Materials Index has no effect on the direction of Invesco Water i.e., Invesco Water and Vanguard Materials go up and down completely randomly.

Pair Corralation between Invesco Water and Vanguard Materials

Considering the 90-day investment horizon Invesco Water Resources is expected to generate 1.11 times more return on investment than Vanguard Materials. However, Invesco Water is 1.11 times more volatile than Vanguard Materials Index. It trades about -0.31 of its potential returns per unit of risk. Vanguard Materials Index is currently generating about -0.53 per unit of risk. If you would invest  7,112  in Invesco Water Resources on September 23, 2024 and sell it today you would lose (452.00) from holding Invesco Water Resources or give up 6.36% of portfolio value over 90 days.

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

Invesco Water Resources  vs.  Vanguard Materials Index

Invesco Water Resources

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Water Resources has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of very healthy technical indicators, Invesco Water is not utilizing all of its potentials. The latest stock price disarray, may contribute to short-term losses for the investors.

Vanguard Materials Index

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Vanguard Materials Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest uncertain performance, the Etf's basic indicators remain stable and the latest fuss on Wall Street may also be a sign of long-term gains for the fund sophisticated investors.

Pair Trading with Invesco Water and Vanguard Materials

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

The idea behind Invesco Water Resources and Vanguard Materials Index 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 Stock Tickers module to use high-impact, comprehensive, and customizable stock tickers that can be easily integrated to any websites.