Correlation Between Invesco DWA and IShares Industrials

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

Diversification Opportunities for Invesco DWA and IShares Industrials

0.84

Correlation Coefficient

Invesco DWA  IShares Industrials

Very poor diversification

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

Pair Corralation between Invesco DWA and IShares Industrials

Considering the 90-day investment horizon Invesco DWA Utilities is expected to generate 1.06 times more return on investment than IShares Industrials. However, Invesco DWA is 1.06 times more volatile than iShares Industrials ETF. It trades about 0.32 of its potential returns per unit of risk. iShares Industrials ETF is currently generating about 0.21 per unit of risk. If you would invest  3,833  in Invesco DWA Utilities on October 20, 2024 and sell it today you would earn a total of  223.00  from holding Invesco DWA Utilities or generate 5.82% return on investment over 90 days.

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

Invesco DWA Utilities  vs.  iShares Industrials ETF

Invesco DWA Utilities

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Utilities are ranked lower than 1 (%) 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.

iShares Industrials ETF

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Industrials ETF are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. Even with relatively steady basic indicators, IShares Industrials is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with Invesco DWA and IShares Industrials

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

The idea behind Invesco DWA Utilities and iShares Industrials 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 Positions Ratings module to determine portfolio positions ratings based on digital equity recommendations. Macroaxis instant position ratings are based on combination of fundamental analysis and risk-adjusted market performance.