Correlation Between Invesco DWA and Vanguard Consumer

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

Diversification Opportunities for Invesco DWA and Vanguard Consumer

0.88

Correlation Coefficient

Invesco DWA  Vanguard Consumer

Very poor diversification

The 3 months correlation between Invesco and Vanguard is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Consumer and Vanguard Consumer Discretionar in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Consumer 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 Vanguard Consumer. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Consumer has no effect on the direction of Invesco DWA i.e., Invesco DWA and Vanguard Consumer go up and down completely randomly.

Pair Corralation between Invesco DWA and Vanguard Consumer

Considering the 90-day investment horizon Invesco DWA is expected to generate 1.71 times less return on investment than Vanguard Consumer. But when comparing it to its historical volatility, Invesco DWA Consumer is 1.53 times less risky than Vanguard Consumer. It trades about 0.07 of its potential returns per unit of risk. Vanguard Consumer Discretionary is currently generating about 0.08 of returns per unit of risk over similar time horizon. If you would invest  25,294  in Vanguard Consumer Discretionary on October 6, 2024 and sell it today you would earn a total of  12,684  from holding Vanguard Consumer Discretionary or generate 50.15% return on investment over 90 days.

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

Invesco DWA Consumer  vs.  Vanguard Consumer Discretionar

Invesco DWA Consumer

Risk-Adjusted Performance

10 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Consumer are ranked lower than 10 (%) 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 current stock price mess, may contribute to short-term losses for the institutional investors.

Vanguard Consumer

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Consumer Discretionary are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. Even with relatively unsteady fundamental indicators, Vanguard Consumer reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco DWA and Vanguard Consumer

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

The idea behind Invesco DWA Consumer and Vanguard Consumer Discretionary 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 Content Syndication module to quickly integrate customizable finance content to your own investment portal.