Correlation Between Invesco DWA and Invesco Dynamic

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

Diversification Opportunities for Invesco DWA and Invesco Dynamic

0.62

Correlation Coefficient

Invesco DWA  Invesco Dynamic

Poor diversification

The 3 months correlation between Invesco and Invesco is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Industrials and Invesco Dynamic Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Energy 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 Invesco Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Dynamic Energy has no effect on the direction of Invesco DWA i.e., Invesco DWA and Invesco Dynamic go up and down completely randomly.

Pair Corralation between Invesco DWA and Invesco Dynamic

Considering the 90-day investment horizon Invesco DWA Industrials is expected to generate 0.82 times more return on investment than Invesco Dynamic. However, Invesco DWA Industrials is 1.22 times less risky than Invesco Dynamic. It trades about 0.15 of its potential returns per unit of risk. Invesco Dynamic Energy is currently generating about -0.01 per unit of risk. If you would invest  14,632  in Invesco DWA Industrials on September 17, 2024 and sell it today you would earn a total of  1,938  from holding Invesco DWA Industrials or generate 13.24% return on investment over 90 days.

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

Invesco DWA Industrials  vs.  Invesco Dynamic Energy

Invesco DWA Industrials

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Industrials are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of very inconsistent basic indicators, Invesco DWA displayed solid returns over the last few months and may actually be approaching a breakup point.

Invesco Dynamic Energy

Risk-Adjusted Performance

0 of 100

Weak

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

Pair Trading with Invesco DWA and Invesco Dynamic

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

The idea behind Invesco DWA Industrials and Invesco Dynamic Energy 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 Portfolio Backtesting module to avoid under-diversification and over-optimization by backtesting your portfolios.