Correlation Between Invesco DWA and Vanguard

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

By analyzing existing cross correlation between Invesco DWA Emerging and Vanguard SP Small Cap, you can compare the effects of market volatilities on Invesco DWA and Vanguard 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 Vanguard. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and Vanguard.

Diversification Opportunities for Invesco DWA and Vanguard

0.05

Correlation Coefficient

Invesco DWA  Vanguard

Significant diversification

The 3 months correlation between Invesco and Vanguard is 0.05. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Emerging and Vanguard SP Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard SP Small 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 Emerging are associated (or correlated) with Vanguard. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard SP Small has no effect on the direction of Invesco DWA i.e., Invesco DWA and Vanguard go up and down completely randomly.

Pair Corralation between Invesco DWA and Vanguard

Considering the 90-day investment horizon Invesco DWA Emerging is expected to generate 0.9 times more return on investment than Vanguard. However, Invesco DWA Emerging is 1.11 times less risky than Vanguard. It trades about -0.08 of its potential returns per unit of risk. Vanguard SP Small Cap is currently generating about -0.13 per unit of risk. If you would invest  1,935  in Invesco DWA Emerging on December 29, 2024 and sell it today you would lose (98.00) from holding Invesco DWA Emerging or give up 5.06% of portfolio value over 90 days.

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

Invesco DWA Emerging  vs.  Vanguard SP Small Cap

Invesco DWA Emerging

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Invesco DWA is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard SP Small

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard SP Small Cap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unfluctuating performance, the Etf's basic indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the ETF investors.

Pair Trading with Invesco DWA and Vanguard

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

The idea behind Invesco DWA Emerging and Vanguard SP Small Cap 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 ETF Categories module to list of ETF categories grouped based on various criteria, such as the investment strategy or type of investments.