Correlation Between Invesco DWA and Vanguard Industrials

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

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

Diversification Opportunities for Invesco DWA and Vanguard Industrials

0.95

Correlation Coefficient

Invesco DWA  Vanguard Industrials

Almost no diversification

The 3 months correlation between Invesco and Vanguard is 0.95. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Basic and Vanguard Industrials Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Industrials 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 Basic are associated (or correlated) with Vanguard Industrials. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Industrials has no effect on the direction of Invesco DWA i.e., Invesco DWA and Vanguard Industrials go up and down completely randomly.

Pair Corralation between Invesco DWA and Vanguard Industrials

Considering the 90-day investment horizon Invesco DWA Basic is expected to generate 1.11 times more return on investment than Vanguard Industrials. However, Invesco DWA is 1.11 times more volatile than Vanguard Industrials Index. It trades about 0.01 of its potential returns per unit of risk. Vanguard Industrials Index is currently generating about -0.04 per unit of risk. If you would invest  8,619  in Invesco DWA Basic on December 28, 2024 and sell it today you would earn a total of  41.00  from holding Invesco DWA Basic or generate 0.48% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	98.36%
Values	Daily Returns

Invesco DWA Basic  vs.  Vanguard Industrials Index

Invesco DWA Basic

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Basic has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Industrials

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Industrials Index has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of comparatively stable forward indicators, Vanguard Industrials is not utilizing all of its potentials. The latest stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Invesco DWA and Vanguard Industrials

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

The idea behind Invesco DWA Basic and Vanguard Industrials Index 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..