Correlation Between ProShares and Invesco DWA

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

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

Diversification Opportunities for ProShares and Invesco DWA

0.4

Correlation Coefficient

ProShares  Invesco DWA

Very weak diversification

The 3 months correlation between ProShares and Invesco is 0.4. Overlapping area represents the amount of risk that can be diversified away by holding ProShares SP Technology and Invesco DWA Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Utilities and ProShares 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 ProShares SP Technology 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 Utilities has no effect on the direction of ProShares i.e., ProShares and Invesco DWA go up and down completely randomly.

Pair Corralation between ProShares and Invesco DWA

Considering the 90-day investment horizon ProShares SP Technology is expected to generate 1.02 times more return on investment than Invesco DWA. However, ProShares is 1.02 times more volatile than Invesco DWA Utilities. It trades about 0.06 of its potential returns per unit of risk. Invesco DWA Utilities is currently generating about 0.03 per unit of risk. If you would invest  7,535  in ProShares SP Technology on September 17, 2024 and sell it today you would earn a total of  269.00  from holding ProShares SP Technology or generate 3.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	98.46%
Values	Daily Returns

ProShares SP Technology  vs.  Invesco DWA Utilities

ProShares SP Technology

Risk-Adjusted Performance

4 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in ProShares SP Technology are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of fairly stable fundamental indicators, ProShares is not utilizing all of its potentials. The recent stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Invesco DWA Utilities

Risk-Adjusted Performance

2 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Utilities are ranked lower than 2 (%) 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.

Pair Trading with ProShares and Invesco DWA

The main advantage of trading using opposite ProShares and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if ProShares 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 ProShares SP Technology and Invesco DWA Utilities 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 Global Correlations module to find global opportunities by holding instruments from different markets.