Correlation Between Schwab Small and Invesco DWA

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

By analyzing existing cross correlation between Schwab Small Cap ETF and Invesco DWA Emerging, you can compare the effects of market volatilities on Schwab Small and Invesco DWA 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 Schwab Small with a short position of Invesco DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Schwab Small and Invesco DWA.

Diversification Opportunities for Schwab Small and Invesco DWA

-0.26

Correlation Coefficient

Schwab Small  Invesco DWA

Very good diversification

The 3 months correlation between Schwab and Invesco is -0.26. Overlapping area represents the amount of risk that can be diversified away by holding Schwab Small Cap ETF and Invesco DWA Emerging in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Emerging and Schwab Small 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 Schwab Small Cap ETF are associated (or correlated) with Invesco DWA. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco DWA Emerging has no effect on the direction of Schwab Small i.e., Schwab Small and Invesco DWA go up and down completely randomly.

Pair Corralation between Schwab Small and Invesco DWA

Given the investment horizon of 90 days Schwab Small Cap ETF is expected to generate 0.94 times more return on investment than Invesco DWA. However, Schwab Small Cap ETF is 1.06 times less risky than Invesco DWA. It trades about 0.14 of its potential returns per unit of risk. Invesco DWA Emerging is currently generating about 0.02 per unit of risk. If you would invest  2,510  in Schwab Small Cap ETF on September 13, 2024 and sell it today you would earn a total of  250.00  from holding Schwab Small Cap ETF or generate 9.96% return on investment over 90 days.

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

Schwab Small Cap ETF  vs.  Invesco DWA Emerging

Schwab Small Cap

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Schwab Small Cap ETF are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak technical indicators, Schwab Small may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco DWA Emerging

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Emerging are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound forward indicators, Invesco DWA is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Pair Trading with Schwab Small and Invesco DWA

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

The idea behind Schwab Small Cap ETF and Invesco DWA Emerging 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 Price Exposure Probability module to analyze equity upside and downside potential for a given time horizon across multiple markets.