Correlation Between Materials Select and Invesco Dynamic

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

Diversification Opportunities for Materials Select and Invesco Dynamic

0.21

Correlation Coefficient

Materials Select  Invesco Dynamic

Modest diversification

The 3 months correlation between Materials and Invesco is 0.21. Overlapping area represents the amount of risk that can be diversified away by holding Materials Select Sector 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 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 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 Materials Select i.e., Materials Select and Invesco Dynamic go up and down completely randomly.

Pair Corralation between Materials Select and Invesco Dynamic

Considering the 90-day investment horizon Materials Select Sector is expected to generate 0.49 times more return on investment than Invesco Dynamic. However, Materials Select Sector is 2.03 times less risky than Invesco Dynamic. It trades about 0.0 of its potential returns per unit of risk. Invesco Dynamic Oil is currently generating about -0.03 per unit of risk. If you would invest  8,881  in Materials Select Sector on September 17, 2024 and sell it today you would lose (37.50) from holding Materials Select Sector or give up 0.42% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	99.21%
Values	Daily Returns

Materials Select Sector  vs.  Invesco Dynamic Oil

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 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 Materials Select and Invesco Dynamic

The main advantage of trading using opposite Materials Select and Invesco Dynamic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Materials Select 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 Materials Select Sector 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 Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .