Correlation Between Invesco DWA and American Century

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

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

Diversification Opportunities for Invesco DWA and American Century

0.84

Correlation Coefficient

Invesco DWA  American Century

Very poor diversification

The 3 months correlation between Invesco and American is 0.84. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Technology and American Century ETF in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on American Century 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 Technology are associated (or correlated) with American Century. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of American Century ETF has no effect on the direction of Invesco DWA i.e., Invesco DWA and American Century go up and down completely randomly.

Pair Corralation between Invesco DWA and American Century

Considering the 90-day investment horizon Invesco DWA is expected to generate 1.0 times less return on investment than American Century. In addition to that, Invesco DWA is 1.73 times more volatile than American Century ETF. It trades about 0.1 of its total potential returns per unit of risk. American Century ETF is currently generating about 0.17 per unit of volatility. If you would invest  9,587  in American Century ETF on October 25, 2024 and sell it today you would earn a total of  1,360  from holding American Century ETF or generate 14.19% return on investment over 90 days.

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

Invesco DWA Technology  vs.  American Century ETF

Invesco DWA Technology

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Technology are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Invesco DWA reported solid returns over the last few months and may actually be approaching a breakup point.

American Century ETF

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in American Century ETF are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile fundamental indicators, American Century reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco DWA and American Century

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

The idea behind Invesco DWA Technology and American Century 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.

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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 Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.