Correlation Between Invesco DWA and IShares Biotechnology

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

Diversification Opportunities for Invesco DWA and IShares Biotechnology

-0.5

Correlation Coefficient

Invesco DWA  IShares Biotechnology

Very good diversification

The 3 months correlation between Invesco and IShares is -0.5. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Industrials and iShares Biotechnology ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Biotechnology ETF 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 IShares Biotechnology. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Biotechnology ETF has no effect on the direction of Invesco DWA i.e., Invesco DWA and IShares Biotechnology go up and down completely randomly.

Pair Corralation between Invesco DWA and IShares Biotechnology

Considering the 90-day investment horizon Invesco DWA Industrials is expected to generate 1.15 times more return on investment than IShares Biotechnology. However, Invesco DWA is 1.15 times more volatile than iShares Biotechnology ETF. It trades about 0.1 of its potential returns per unit of risk. iShares Biotechnology ETF is currently generating about -0.11 per unit of risk. If you would invest  15,106  in Invesco DWA Industrials on September 19, 2024 and sell it today you would earn a total of  1,244  from holding Invesco DWA Industrials or generate 8.24% return on investment over 90 days.

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

Invesco DWA Industrials  vs.  iShares Biotechnology ETF

Invesco DWA Industrials

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Industrials are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of very weak basic indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

iShares Biotechnology ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Biotechnology ETF has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Pair Trading with Invesco DWA and IShares Biotechnology

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

The idea behind Invesco DWA Industrials and iShares Biotechnology ETF 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 Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.