Correlation Between Invesco DWA and VanEck Environmental

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

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

Diversification Opportunities for Invesco DWA and VanEck Environmental

0.94

Correlation Coefficient

Invesco DWA  VanEck Environmental

Almost no diversification

The 3 months correlation between Invesco and VanEck is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Industrials and VanEck Environmental Services in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on VanEck Environmental 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 Industrials are associated (or correlated) with VanEck Environmental. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of VanEck Environmental has no effect on the direction of Invesco DWA i.e., Invesco DWA and VanEck Environmental go up and down completely randomly.

Pair Corralation between Invesco DWA and VanEck Environmental

Considering the 90-day investment horizon Invesco DWA Industrials is expected to generate 1.65 times more return on investment than VanEck Environmental. However, Invesco DWA is 1.65 times more volatile than VanEck Environmental Services. It trades about 0.32 of its potential returns per unit of risk. VanEck Environmental Services is currently generating about 0.21 per unit of risk. If you would invest  15,622  in Invesco DWA Industrials on September 5, 2024 and sell it today you would earn a total of  1,868  from holding Invesco DWA Industrials or generate 11.96% return on investment over 90 days.

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

Invesco DWA Industrials  vs.  VanEck Environmental Services

Invesco DWA Industrials

Risk-Adjusted Performance

23 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Industrials are ranked lower than 23 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Invesco DWA displayed solid returns over the last few months and may actually be approaching a breakup point.

VanEck Environmental

Risk-Adjusted Performance

11 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in VanEck Environmental Services are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unfluctuating basic indicators, VanEck Environmental may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco DWA and VanEck Environmental

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

The idea behind Invesco DWA Industrials and VanEck Environmental Services 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 My Watchlist Analysis module to analyze my current watchlist and to refresh optimization strategy. Macroaxis watchlist is based on self-learning algorithm to remember stocks you like.