Correlation Between Invesco DWA and Westwood Smallcap

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

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

Diversification Opportunities for Invesco DWA and Westwood Smallcap

0.69

Correlation Coefficient

Invesco DWA  Westwood Smallcap

Poor diversification

The 3 months correlation between Invesco and Westwood is 0.69. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Healthcare and Westwood Smallcap Value in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Westwood Smallcap Value 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 Healthcare are associated (or correlated) with Westwood Smallcap. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Westwood Smallcap Value has no effect on the direction of Invesco DWA i.e., Invesco DWA and Westwood Smallcap go up and down completely randomly.

Pair Corralation between Invesco DWA and Westwood Smallcap

Considering the 90-day investment horizon Invesco DWA Healthcare is expected to generate 1.91 times more return on investment than Westwood Smallcap. However, Invesco DWA is 1.91 times more volatile than Westwood Smallcap Value. It trades about -0.01 of its potential returns per unit of risk. Westwood Smallcap Value is currently generating about -0.1 per unit of risk. If you would invest  4,006  in Invesco DWA Healthcare on December 29, 2024 and sell it today you would lose (111.00) from holding Invesco DWA Healthcare or give up 2.77% of portfolio value over 90 days.

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

Invesco DWA Healthcare  vs.  Westwood Smallcap Value

Invesco DWA Healthcare

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Healthcare has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Westwood Smallcap Value

Risk-Adjusted Performance

Very Weak

Over the last 90 days Westwood Smallcap Value has generated negative risk-adjusted returns adding no value to fund investors. In spite of latest weak performance, the Fund's basic indicators remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the fund investors.

Pair Trading with Invesco DWA and Westwood Smallcap

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

The idea behind Invesco DWA Healthcare and Westwood Smallcap Value 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.