Correlation Between Consumer Discretionary and Invesco DWA

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

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

Diversification Opportunities for Consumer Discretionary and Invesco DWA

0.92

Correlation Coefficient

Consumer Discretionary  Invesco DWA

Almost no diversification

The 3 months correlation between Consumer and Invesco is 0.92. Overlapping area represents the amount of risk that can be diversified away by holding Consumer Discretionary Select and Invesco DWA Technology in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Technology and Consumer Discretionary 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 Consumer Discretionary Select 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 Technology has no effect on the direction of Consumer Discretionary i.e., Consumer Discretionary and Invesco DWA go up and down completely randomly.

Pair Corralation between Consumer Discretionary and Invesco DWA

Considering the 90-day investment horizon Consumer Discretionary Select is expected to generate 0.59 times more return on investment than Invesco DWA. However, Consumer Discretionary Select is 1.7 times less risky than Invesco DWA. It trades about 0.13 of its potential returns per unit of risk. Invesco DWA Technology is currently generating about 0.07 per unit of risk. If you would invest  18,584  in Consumer Discretionary Select on September 30, 2024 and sell it today you would earn a total of  4,390  from holding Consumer Discretionary Select or generate 23.62% return on investment over 90 days.

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

Consumer Discretionary Select  vs.  Invesco DWA Technology

Consumer Discretionary

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Consumer Discretionary Select are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of fairly weak essential indicators, Consumer Discretionary showed solid returns over the last few months and may actually be approaching a breakup point.

Invesco DWA Technology

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA Technology are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. Despite nearly inconsistent basic indicators, Invesco DWA reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Consumer Discretionary and Invesco DWA

The main advantage of trading using opposite Consumer Discretionary and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Consumer Discretionary 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 Consumer Discretionary Select and Invesco DWA Technology 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 AI Portfolio Architect module to use AI to generate optimal portfolios and find profitable investment opportunities.