Correlation Between Invesco DWA and SPDR SP

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

Diversification Opportunities for Invesco DWA and SPDR SP

0.81

Correlation Coefficient

Invesco DWA  SPDR SP

Very poor diversification

The 3 months correlation between Invesco and SPDR is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Utilities and SPDR SP Kensho in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR SP Kensho 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 SPDR SP. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR SP Kensho has no effect on the direction of Invesco DWA i.e., Invesco DWA and SPDR SP go up and down completely randomly.

Pair Corralation between Invesco DWA and SPDR SP

Considering the 90-day investment horizon Invesco DWA is expected to generate 17.27 times less return on investment than SPDR SP. But when comparing it to its historical volatility, Invesco DWA Utilities is 1.35 times less risky than SPDR SP. It trades about 0.02 of its potential returns per unit of risk. SPDR SP Kensho is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  4,844  in SPDR SP Kensho on September 17, 2024 and sell it today you would earn a total of  1,000  from holding SPDR SP Kensho or generate 20.65% 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.  SPDR SP Kensho

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.

SPDR SP Kensho

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR SP Kensho are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively inconsistent forward-looking signals, SPDR SP unveiled solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco DWA and SPDR SP

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

The idea behind Invesco DWA Utilities and SPDR SP Kensho 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 Efficient Frontier module to plot and analyze your portfolio and positions against risk-return landscape of the market..