Correlation Between Invesco DWA and Virtus Reaves

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

Diversification Opportunities for Invesco DWA and Virtus Reaves

0.74

Correlation Coefficient

Invesco DWA  Virtus Reaves

Poor diversification

The 3 months correlation between Invesco and Virtus is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Consumer and Virtus Reaves Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Virtus Reaves Utilities 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 Virtus Reaves. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Virtus Reaves Utilities has no effect on the direction of Invesco DWA i.e., Invesco DWA and Virtus Reaves go up and down completely randomly.

Pair Corralation between Invesco DWA and Virtus Reaves

Considering the 90-day investment horizon Invesco DWA is expected to generate 1.22 times less return on investment than Virtus Reaves. But when comparing it to its historical volatility, Invesco DWA Consumer is 2.38 times less risky than Virtus Reaves. It trades about 0.21 of its potential returns per unit of risk. Virtus Reaves Utilities is currently generating about 0.11 of returns per unit of risk over similar time horizon. If you would invest  5,969  in Virtus Reaves Utilities on September 15, 2024 and sell it today you would earn a total of  601.00  from holding Virtus Reaves Utilities or generate 10.07% return on investment over 90 days.

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

Invesco DWA Consumer  vs.  Virtus Reaves Utilities

Invesco DWA Consumer

Risk-Adjusted Performance

16 of 100

Solid

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 unsteady basic indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Virtus Reaves Utilities

Risk-Adjusted Performance

8 of 100

OK

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

Pair Trading with Invesco DWA and Virtus Reaves

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

The idea behind Invesco DWA Consumer and Virtus Reaves Utilities 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 Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.