Correlation Between Invesco DWA and IShares Utilities

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

By analyzing existing cross correlation between Invesco DWA Consumer and iShares Utilities ETF, you can compare the effects of market volatilities on Invesco DWA and IShares Utilities 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 Utilities. Check out your portfolio center. Please also check ongoing floating volatility patterns of Invesco DWA and IShares Utilities.

Diversification Opportunities for Invesco DWA and IShares Utilities

0.06

Correlation Coefficient

Invesco DWA  IShares Utilities

Significant diversification

The 3 months correlation between Invesco and IShares is 0.06. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Consumer and iShares Utilities ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on iShares Utilities 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 Consumer are associated (or correlated) with IShares Utilities. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of iShares Utilities ETF has no effect on the direction of Invesco DWA i.e., Invesco DWA and IShares Utilities go up and down completely randomly.

Pair Corralation between Invesco DWA and IShares Utilities

Considering the 90-day investment horizon Invesco DWA Consumer is expected to generate 0.72 times more return on investment than IShares Utilities. However, Invesco DWA Consumer is 1.38 times less risky than IShares Utilities. It trades about -0.35 of its potential returns per unit of risk. iShares Utilities ETF is currently generating about -0.36 per unit of risk. If you would invest  11,008  in Invesco DWA Consumer on September 25, 2024 and sell it today you would lose (518.00) from holding Invesco DWA Consumer or give up 4.71% of portfolio value over 90 days.

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

Invesco DWA Consumer  vs.  iShares Utilities ETF

Invesco DWA Consumer

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Consumer are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite quite persistent basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

iShares Utilities ETF

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Utilities ETF has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable fundamental indicators, IShares Utilities is not utilizing all of its potentials. The new stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Invesco DWA and IShares Utilities

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

The idea behind Invesco DWA Consumer and iShares Utilities 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.

Check out your portfolio center.

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 Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.