Correlation Between Invesco Water and Utilities Select

Can any of the company-specific risk be diversified away by investing in both Invesco Water and Utilities Select 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 Utilities Select 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 Utilities Select Sector, you can compare the effects of market volatilities on Invesco Water and Utilities Select 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 Utilities Select. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco Water and Utilities Select.

Diversification Opportunities for Invesco Water and Utilities Select

0.64

Correlation Coefficient

Invesco Water  Utilities Select

Poor diversification

The 3 months correlation between Invesco and Utilities is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Invesco Water Resources and Utilities Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Utilities Select Sector 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 Utilities Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Utilities Select Sector has no effect on the direction of Invesco Water i.e., Invesco Water and Utilities Select go up and down completely randomly.

Pair Corralation between Invesco Water and Utilities Select

Considering the 90-day investment horizon Invesco Water Resources is expected to under-perform the Utilities Select. In addition to that, Invesco Water is 1.13 times more volatile than Utilities Select Sector. It trades about -0.46 of its total potential returns per unit of risk. Utilities Select Sector is currently generating about -0.26 per unit of volatility. If you would invest  7,979  in Utilities Select Sector on October 4, 2024 and sell it today you would lose (352.00) from holding Utilities Select Sector or give up 4.41% 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.  Utilities Select Sector

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.

Utilities Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Utilities Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable essential indicators, Utilities Select 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 Water and Utilities Select

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

The idea behind Invesco Water Resources and Utilities Select Sector 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 Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.