Correlation Between Invesco DWA and Energy Select

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

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

Diversification Opportunities for Invesco DWA and Energy Select

0.94

Correlation Coefficient

Invesco DWA  Energy Select

Almost no diversification

The 3 months correlation between Invesco and Energy is 0.94. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Energy and Energy Select Sector in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Energy Select Sector 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 Energy are associated (or correlated) with Energy Select. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Energy Select Sector has no effect on the direction of Invesco DWA i.e., Invesco DWA and Energy Select go up and down completely randomly.

Pair Corralation between Invesco DWA and Energy Select

Considering the 90-day investment horizon Invesco DWA Energy is expected to generate 1.37 times more return on investment than Energy Select. However, Invesco DWA is 1.37 times more volatile than Energy Select Sector. It trades about 0.09 of its potential returns per unit of risk. Energy Select Sector is currently generating about 0.06 per unit of risk. If you would invest  4,232  in Invesco DWA Energy on September 16, 2024 and sell it today you would earn a total of  371.00  from holding Invesco DWA Energy or generate 8.77% return on investment over 90 days.

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

Invesco DWA Energy  vs.  Energy Select Sector

Invesco DWA Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Energy Select Sector

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound essential indicators, Energy Select is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Invesco DWA and Energy Select

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

The idea behind Invesco DWA Energy and Energy Select Sector 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.

Check out your portfolio center.

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.