Correlation Between Vanguard Small and Invesco DWA

Can any of the company-specific risk be diversified away by investing in both Vanguard 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 Vanguard 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 Vanguard Small Cap Index and Invesco DWA SmallCap, you can compare the effects of market volatilities on Vanguard 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 Vanguard Small with a short position of Invesco DWA. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Small and Invesco DWA.

Diversification Opportunities for Vanguard Small and Invesco DWA

0.89

Correlation Coefficient

Vanguard Small  Invesco DWA

Very poor diversification

The 3 months correlation between Vanguard and Invesco is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Small Cap Index and Invesco DWA SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA SmallCap and Vanguard 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 Vanguard Small Cap Index 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 SmallCap has no effect on the direction of Vanguard Small i.e., Vanguard Small and Invesco DWA go up and down completely randomly.

Pair Corralation between Vanguard Small and Invesco DWA

Allowing for the 90-day total investment horizon Vanguard Small Cap Index is expected to generate 0.6 times more return on investment than Invesco DWA. However, Vanguard Small Cap Index is 1.66 times less risky than Invesco DWA. It trades about -0.14 of its potential returns per unit of risk. Invesco DWA SmallCap is currently generating about -0.2 per unit of risk. If you would invest  25,954  in Vanguard Small Cap Index on November 28, 2024 and sell it today you would lose (2,135) from holding Vanguard Small Cap Index or give up 8.23% of portfolio value over 90 days.

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

Vanguard Small Cap Index  vs.  Invesco DWA SmallCap

Vanguard Small Cap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard Small Cap Index has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Etf's fundamental drivers remain strong and the current disturbance on Wall Street may also be a sign of long term gains for the ETF investors.

Invesco DWA SmallCap

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA SmallCap has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Etf's basic indicators remain comparatively stable which may send shares a bit higher in March 2025. The newest uproar may also be a sign of mid-term up-swing for the exchange-traded fund private investors.

Pair Trading with Vanguard Small and Invesco DWA

The main advantage of trading using opposite Vanguard Small and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Vanguard 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 Vanguard Small Cap Index and Invesco DWA SmallCap 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 Insider Screener module to find insiders across different sectors to evaluate their impact on performance.