Correlation Between Invesco DWA and Vanguard Small

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

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

Diversification Opportunities for Invesco DWA and Vanguard Small

-0.15

Correlation Coefficient

Invesco DWA  Vanguard Small

Good diversification

The 3 months correlation between Invesco and Vanguard is -0.15. Overlapping area represents the amount of risk that can be diversified away by holding Invesco DWA Emerging and Vanguard Small Cap Index in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Small Cap and Invesco DWA 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 DWA Emerging are associated (or correlated) with Vanguard Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Small Cap has no effect on the direction of Invesco DWA i.e., Invesco DWA and Vanguard Small go up and down completely randomly.

Pair Corralation between Invesco DWA and Vanguard Small

Considering the 90-day investment horizon Invesco DWA Emerging is expected to under-perform the Vanguard Small. In addition to that, Invesco DWA is 1.14 times more volatile than Vanguard Small Cap Index. It trades about -0.01 of its total potential returns per unit of risk. Vanguard Small Cap Index is currently generating about 0.14 per unit of volatility. If you would invest  21,643  in Vanguard Small Cap Index on September 5, 2024 and sell it today you would earn a total of  4,291  from holding Vanguard Small Cap Index or generate 19.83% return on investment over 90 days.

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

Invesco DWA Emerging  vs.  Vanguard Small Cap Index

Invesco DWA Emerging

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Invesco DWA Emerging has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound forward indicators, Invesco DWA is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.

Vanguard Small Cap

Risk-Adjusted Performance

18 of 100

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Small Cap Index are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite somewhat unsteady fundamental drivers, Vanguard Small sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Invesco DWA and Vanguard Small

The main advantage of trading using opposite Invesco DWA and Vanguard Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Invesco DWA position performs unexpectedly, Vanguard Small 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 Vanguard Small will offset losses from the drop in Vanguard Small's long position.

The idea behind Invesco DWA Emerging and Vanguard Small Cap Index 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 Funds Screener module to find actively-traded funds from around the world traded on over 30 global exchanges.