Correlation Between Invesco SP and Invesco DWA

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

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

Diversification Opportunities for Invesco SP and Invesco DWA

0.88

Correlation Coefficient

Invesco SP  Invesco DWA

Very poor diversification

The 3 months correlation between Invesco and Invesco is 0.88. Overlapping area represents the amount of risk that can be diversified away by holding Invesco SP MidCap and Invesco DWA SmallCap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA SmallCap and Invesco SP 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 Invesco SP MidCap 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 SmallCap has no effect on the direction of Invesco SP i.e., Invesco SP and Invesco DWA go up and down completely randomly.

Pair Corralation between Invesco SP and Invesco DWA

Given the investment horizon of 90 days Invesco SP MidCap is expected to generate 0.77 times more return on investment than Invesco DWA. However, Invesco SP MidCap is 1.29 times less risky than Invesco DWA. It trades about 0.11 of its potential returns per unit of risk. Invesco DWA SmallCap is currently generating about -0.08 per unit of risk. If you would invest  10,364  in Invesco SP MidCap on September 15, 2024 and sell it today you would earn a total of  229.00  from holding Invesco SP MidCap or generate 2.21% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	95.45%
Values	Daily Returns

Invesco SP MidCap  vs.  Invesco DWA SmallCap

Invesco SP MidCap

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco SP MidCap are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Even with relatively invariable technical indicators, Invesco SP is not utilizing all of its potentials. The current stock price agitation, may contribute to short-term losses for the retail investors.

Invesco DWA SmallCap

Risk-Adjusted Performance

5 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Invesco DWA SmallCap are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Invesco DWA may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Pair Trading with Invesco SP and Invesco DWA

The main advantage of trading using opposite Invesco SP and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco SP 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 Invesco SP MidCap and Invesco DWA SmallCap 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 Share Portfolio module to track or share privately all of your investments from the convenience of any device.