Correlation Between Invesco DWA and Select STOXX

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

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

Diversification Opportunities for Invesco DWA and Select STOXX

0.47

Correlation Coefficient

Invesco DWA  Select STOXX

Very weak diversification

The 3 months correlation between Invesco and Select is 0.47. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Utilities and Select STOXX Europe in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Select STOXX Europe 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 Utilities are associated (or correlated) with Select STOXX. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Select STOXX Europe has no effect on the direction of Invesco DWA i.e., Invesco DWA and Select STOXX go up and down completely randomly.

Pair Corralation between Invesco DWA and Select STOXX

Considering the 90-day investment horizon Invesco DWA is expected to generate 7.38 times less return on investment than Select STOXX. But when comparing it to its historical volatility, Invesco DWA Utilities is 1.91 times less risky than Select STOXX. It trades about 0.08 of its potential returns per unit of risk. Select STOXX Europe is currently generating about 0.29 of returns per unit of risk over similar time horizon. If you would invest  2,440  in Select STOXX Europe on December 28, 2024 and sell it today you would earn a total of  994.00  from holding Select STOXX Europe or generate 40.74% return on investment over 90 days.

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

Invesco DWA Utilities  vs.  Select STOXX Europe

Invesco DWA Utilities

Risk-Adjusted Performance

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Utilities are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Despite fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Select STOXX Europe

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Select STOXX Europe are ranked lower than 22 (%) of all global equities and portfolios over the last 90 days. In spite of rather inconsistent basic indicators, Select STOXX exhibited solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco DWA and Select STOXX

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

The idea behind Invesco DWA Utilities and Select STOXX Europe 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 Pattern Recognition module to use different Pattern Recognition models to time the market across multiple global exchanges.