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 Consumer 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

0.49

Correlation Coefficient

Invesco DWA  Invesco Dynamic

Very weak diversification

The 3 months correlation between Invesco and Invesco is 0.49. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Consumer 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 Consumer 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 Consumer is expected to generate 0.49 times more return on investment than Invesco Dynamic. However, Invesco DWA Consumer is 2.04 times less risky than Invesco Dynamic. It trades about 0.35 of its potential returns per unit of risk. Invesco Dynamic Energy is currently generating about -0.2 per unit of risk. If you would invest  10,531  in Invesco DWA Consumer on September 17, 2024 and sell it today you would earn a total of  455.00  from holding Invesco DWA Consumer or generate 4.32% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	95.24%
Values	Daily Returns

Invesco DWA Consumer  vs.  Invesco Dynamic Energy

Invesco DWA Consumer

Risk-Adjusted Performance

16 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Consumer are ranked lower than 16 (%) of all global equities and portfolios over the last 90 days. Despite quite weak basic indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco Dynamic Energy

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco Dynamic Energy are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. 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 Consumer 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 Watchlist Optimization module to optimize watchlists to build efficient portfolios or rebalance existing positions based on the mean-variance optimization algorithm.