Correlation Between Materials Select and Invesco DWA

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

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

Diversification Opportunities for Materials Select and Invesco DWA

-0.23

Correlation Coefficient

Materials Select  Invesco DWA

Very good diversification

The 3 months correlation between Materials and Invesco is -0.23. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector and Invesco DWA Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Energy and Materials Select 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 Materials Select Sector 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 Energy has no effect on the direction of Materials Select i.e., Materials Select and Invesco DWA go up and down completely randomly.

Pair Corralation between Materials Select and Invesco DWA

Considering the 90-day investment horizon Materials Select Sector is expected to under-perform the Invesco DWA. But the etf apears to be less risky and, when comparing its historical volatility, Materials Select Sector is 2.08 times less risky than Invesco DWA. The etf trades about -0.08 of its potential returns per unit of risk. The Invesco DWA Energy is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  4,232  in Invesco DWA Energy on September 16, 2024 and sell it today you would earn a total of  371.00  from holding Invesco DWA Energy or generate 8.77% return on investment over 90 days.

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

Materials Select Sector  vs.  Invesco DWA Energy

Materials Select Sector

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Materials Select Sector has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong essential indicators, Materials Select is not utilizing all of its potentials. The recent stock price disturbance, may contribute to short-term losses for the investors.

Invesco DWA Energy

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Energy are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady basic indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Materials Select and Invesco DWA

The main advantage of trading using opposite Materials Select and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select 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 Materials Select Sector and Invesco DWA Energy 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 Money Managers module to screen money managers from public funds and ETFs managed around the world.