Correlation Between Invesco DWA and Vanguard Russell

Can any of the company-specific risk be diversified away by investing in both Invesco DWA and Vanguard Russell 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 Russell 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 Russell 2000, you can compare the effects of market volatilities on Invesco DWA and Vanguard Russell 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 Russell. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and Vanguard Russell.

Diversification Opportunities for Invesco DWA and Vanguard Russell

-0.16

Correlation Coefficient

Invesco DWA  Vanguard Russell

Good diversification

The 3 months correlation between Invesco and Vanguard is -0.16. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Emerging and Vanguard Russell 2000 in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Russell 2000 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 Russell. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Russell 2000 has no effect on the direction of Invesco DWA i.e., Invesco DWA and Vanguard Russell go up and down completely randomly.

Pair Corralation between Invesco DWA and Vanguard Russell

Considering the 90-day investment horizon Invesco DWA is expected to generate 83.2 times less return on investment than Vanguard Russell. In addition to that, Invesco DWA is 1.02 times more volatile than Vanguard Russell 2000. It trades about 0.0 of its total potential returns per unit of risk. Vanguard Russell 2000 is currently generating about 0.17 per unit of volatility. If you would invest  8,543  in Vanguard Russell 2000 on September 5, 2024 and sell it today you would earn a total of  1,168  from holding Vanguard Russell 2000 or generate 13.67% return on investment over 90 days.

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

Invesco DWA Emerging  vs.  Vanguard Russell 2000

Invesco DWA Emerging

Risk-Adjusted Performance

0 of 100

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 Russell 2000

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Russell 2000 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. In spite of very fragile basic indicators, Vanguard Russell displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco DWA and Vanguard Russell

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

The idea behind Invesco DWA Emerging and Vanguard Russell 2000 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 Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.