Correlation Between Vanguard Energy and Invesco Dynamic

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

By analyzing existing cross correlation between Vanguard Energy Index and Invesco Dynamic Oil, you can compare the effects of market volatilities on Vanguard Energy and Invesco Dynamic 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 Energy with a short position of Invesco Dynamic. Check out your portfolio center. Please also check ongoing floating volatility patterns of Vanguard Energy and Invesco Dynamic.

Diversification Opportunities for Vanguard Energy and Invesco Dynamic

0.62

Correlation Coefficient

Vanguard Energy  Invesco Dynamic

Poor diversification

The 3 months correlation between Vanguard and Invesco is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding Vanguard Energy Index and Invesco Dynamic Oil in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco Dynamic Oil and Vanguard Energy 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 Energy Index are associated (or correlated) with Invesco Dynamic. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Invesco Dynamic Oil has no effect on the direction of Vanguard Energy i.e., Vanguard Energy and Invesco Dynamic go up and down completely randomly.

Pair Corralation between Vanguard Energy and Invesco Dynamic

Considering the 90-day investment horizon Vanguard Energy Index is expected to generate 0.65 times more return on investment than Invesco Dynamic. However, Vanguard Energy Index is 1.53 times less risky than Invesco Dynamic. It trades about 0.04 of its potential returns per unit of risk. Invesco Dynamic Oil is currently generating about -0.02 per unit of risk. If you would invest  12,153  in Vanguard Energy Index on September 17, 2024 and sell it today you would earn a total of  309.00  from holding Vanguard Energy Index or generate 2.54% return on investment over 90 days.

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

Vanguard Energy Index  vs.  Invesco Dynamic Oil

Vanguard Energy Index

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Energy Index are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of rather sound fundamental indicators, Vanguard Energy is not utilizing all of its potentials. The recent stock price tumult, may contribute to shorter-term losses for the shareholders.

Invesco Dynamic Oil

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco Dynamic Oil has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively steady basic indicators, Invesco Dynamic is not utilizing all of its potentials. The latest stock price chaos, may contribute to medium-term losses for the stakeholders.

Pair Trading with Vanguard Energy and Invesco Dynamic

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

The idea behind Vanguard Energy Index and Invesco Dynamic Oil 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 Commodity Directory module to find actively traded commodities issued by global exchanges.