Correlation Between SPDR SP and Invesco DWA

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

Diversification Opportunities for SPDR SP and Invesco DWA

-0.15

Correlation Coefficient

SPDR SP  Invesco DWA

Good diversification

The 3 months correlation between SPDR and Invesco is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding SPDR SP Semiconductor and Invesco DWA Utilities in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Invesco DWA Utilities and SPDR 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 SPDR SP Semiconductor 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 Utilities has no effect on the direction of SPDR SP i.e., SPDR SP and Invesco DWA go up and down completely randomly.

Pair Corralation between SPDR SP and Invesco DWA

Considering the 90-day investment horizon SPDR SP Semiconductor is expected to under-perform the Invesco DWA. In addition to that, SPDR SP is 2.78 times more volatile than Invesco DWA Utilities. It trades about -0.2 of its total potential returns per unit of risk. Invesco DWA Utilities is currently generating about 0.03 per unit of volatility. If you would invest  4,009  in Invesco DWA Utilities on December 4, 2024 and sell it today you would earn a total of  20.00  from holding Invesco DWA Utilities or generate 0.5% return on investment over 90 days.

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

SPDR SP Semiconductor  vs.  Invesco DWA Utilities

SPDR SP Semiconductor

Risk-Adjusted Performance

Very Weak

Over the last 90 days SPDR SP Semiconductor has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of inconsistent performance in the last few months, the Etf's basic indicators remain rather sound which may send shares a bit higher in April 2025. The latest tumult may also be a sign of longer-term up-swing for the fund shareholders.

Invesco DWA Utilities

Risk-Adjusted Performance

Very Weak

Over the last 90 days Invesco DWA Utilities has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, Invesco DWA is not utilizing all of its potentials. The latest stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with SPDR SP and Invesco DWA

The main advantage of trading using opposite SPDR SP and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if SPDR 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 SPDR SP Semiconductor and Invesco DWA Utilities 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.

Check out your portfolio center.

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.