Correlation Between Energy Select and Invesco Dynamic

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

Diversification Opportunities for Energy Select and Invesco Dynamic

0.46

Correlation Coefficient

Energy Select  Invesco Dynamic

Very weak diversification

The 3 months correlation between Energy and Invesco is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding Energy 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 Energy 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 Energy 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 Energy Select i.e., Energy Select and Invesco Dynamic go up and down completely randomly.

Pair Corralation between Energy Select and Invesco Dynamic

Considering the 90-day investment horizon Energy Select Sector is expected to generate 0.77 times more return on investment than Invesco Dynamic. However, Energy Select Sector is 1.29 times less risky than Invesco Dynamic. It trades about 0.13 of its potential returns per unit of risk. Invesco Dynamic Oil is currently generating about -0.04 per unit of risk. If you would invest  8,393  in Energy Select Sector on December 22, 2024 and sell it today you would earn a total of  859.00  from holding Energy Select Sector or generate 10.23% return on investment over 90 days.

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

Energy Select Sector  vs.  Invesco Dynamic Oil

Energy Select Sector

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Energy Select Sector are ranked lower than 10 (%) of all global equities and portfolios over the last 90 days. In spite of rather fragile essential indicators, Energy Select may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Invesco Dynamic Oil

Risk-Adjusted Performance

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 Energy Select and Invesco Dynamic

The main advantage of trading using opposite Energy Select and Invesco Dynamic positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Energy 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 Energy 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 Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.