Correlation Between IShares Telecommunicatio and Invesco DWA

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

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

Diversification Opportunities for IShares Telecommunicatio and Invesco DWA

0.5

Correlation Coefficient

IShares Telecommunicatio  Invesco DWA

Very weak diversification

The 3 months correlation between IShares and Invesco is 0.5. Overlapping area represents the amount of risk that can be diversified away by holding iShares Telecommunications ETF 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 IShares Telecommunicatio 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 iShares Telecommunications ETF 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 IShares Telecommunicatio i.e., IShares Telecommunicatio and Invesco DWA go up and down completely randomly.

Pair Corralation between IShares Telecommunicatio and Invesco DWA

Considering the 90-day investment horizon iShares Telecommunications ETF is expected to generate 1.04 times more return on investment than Invesco DWA. However, IShares Telecommunicatio is 1.04 times more volatile than Invesco DWA Utilities. It trades about -0.08 of its potential returns per unit of risk. Invesco DWA Utilities is currently generating about -0.4 per unit of risk. If you would invest  2,751  in iShares Telecommunications ETF on September 25, 2024 and sell it today you would lose (47.00) from holding iShares Telecommunications ETF or give up 1.71% of portfolio value over 90 days.

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

iShares Telecommunications ETF  vs.  Invesco DWA Utilities

IShares Telecommunicatio

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in iShares Telecommunications ETF are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. In spite of fairly unsteady basic indicators, IShares Telecommunicatio may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Invesco DWA Utilities

Risk-Adjusted Performance

0 of 100

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 IShares Telecommunicatio and Invesco DWA

The main advantage of trading using opposite IShares Telecommunicatio and Invesco DWA positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Telecommunicatio 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 iShares Telecommunications ETF 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.

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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 Earnings Calls module to check upcoming earnings announcements updated hourly across public exchanges.